<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 7, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
STUDENT ADVANTAGE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 8699 04-3263743
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
------------------------
280 SUMMER STREET
BOSTON, MASSACHUSETTS 02210
(617) 912-2011
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
RAYMOND V. SOZZI, JR.
CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF EXECUTIVE OFFICER
STUDENT ADVANTAGE, INC.
280 SUMMER STREET
BOSTON, MASSACHUSETTS 02210
(617) 912-2011
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE
NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
MARK G. BORDEN, ESQ. LAWRENCE S. WITTENBERG, ESQ.
HALE AND DORR LLP TESTA, HURWITZ & THIBEAULT, LLP
60 STATE STREET 125 HIGH STREET
BOSTON, MASSACHUSETTS 02109 BOSTON, MASSACHUSETTS 02110
TELEPHONE: (617) 526-6000 TELEPHONE: (617) 248-7000
TELECOPY: (617) 526-5000 TELECOPY: (617) 248-7100
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date hereof.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
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<CAPTION>
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TITLE OF EACH CLASS OF SECURITIES TO PROPOSED MAXIMUM AMOUNT OF
BE REGISTERED AGGREGATE OFFERING PRICE (1) REGISTRATION FEE
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<S> <C> <C>
Common Stock, $.01 par value per share...................... $80,500,000 $22,379
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</TABLE>
(1) Estimated solely for the purpose of calculating the amount of the
registration fee.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL SECURITIES, AND WE ARE NOT SOLICITING OFFERS TO BUY THESE SECURITIES, IN
ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED APRIL 7, 1999
[LOGO]
SHARES
COMMON STOCK
Student Advantage, Inc. is offering shares of its
common stock. This is Student Advantage's initial public offering and no public
market currently exists for its shares. We have applied for approval for
quotation on the Nasdaq National Market under the symbol "STAD" for the shares
we are offering. We anticipate that the initial public offering price will be
between $ and $ per share.
------------------------------
INVESTING IN THE COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 7.
------------------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
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<S> <C> <C>
Public Offering Price....................................... $ $
Underwriting Discounts and Commissions...................... $ $
Proceeds to the Company..................................... $ $
</TABLE>
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE
NOT APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS
IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Student Advantage has granted the underwriters a 30-day option to purchase
up to an additional shares of common stock to cover over-allotments.
BancBoston Robertson Stephens Inc. expects to deliver the shares of common stock
to purchasers on , 1999.
------------------------------
BANCBOSTON ROBERTSON STEPHENS
PRUDENTIAL SECURITIES
VOLPE BROWN WHELAN & COMPANY
The date of this Prospectus is , 1999.
<PAGE> 3
[The inside front cover depicts five computer screen shots of Student
Advantage's Web site. The Student Advantage logo is at the top of the page and
the heading beneath the logo is "Studentadvantage.com." The top computer screen
shot depicts the home page of www.studentadvantage.com. The two middle screens
show content provided by "College News" through the U-Wire news feed and
services available from many corporate partners via "E-Commerce." The bottom two
screens depict other resources available such as "Bulletin Boards" and "Address
book & E-mail" screens.]
<PAGE> 4
The graphic covering the gatefold pages depicts various products and
services provided to the three communities served by Student Advantage. The
heading Student Advantage is centered across the top of the two pages. The upper
left corner with the heading "Students" depicts a graphic of the 1998 - 1999
Student Advantage membership card. In the lower left corner is a graphic of four
covers of the Student Advantage magazine. A graphic of five computer screens
described on the inside front cover is centered across the middle of the two
pages. In the upper right corner is the heading, universities. Beneath this is a
graphic of the U-Wire logo. A map of the United States and the heading
"Businesses" are centered on the bottom of the page. Logos from the following
corporate sponsors are placed on the map: Amtrak, Tower Records, AT&T, America
Online, Lexis, Nexis, USA Today and Excite.
<PAGE> 5
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO
BUY, SHARES OF COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE
PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF
THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS
PROSPECTUS OR OF ANY SALE OF OUR COMMON STOCK. IN THIS PROSPECTUS, "STUDENT
ADVANTAGE," THE "COMPANY," "WE," "US" AND "OUR" REFER TO STUDENT ADVANTAGE, INC.
UNTIL , 1999, ALL DEALERS THAT BUY, SELL OR TRADE OUR
COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS REQUIREMENT IS IN ADDITION TO THE DEALERS' OBLIGATION
TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................................... 4
Risk Factors................................................ 7
Use of Proceeds............................................. 16
Dividend Policy............................................. 16
Capitalization.............................................. 17
Dilution.................................................... 18
Selected Financial Data..................................... 19
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 20
Business.................................................... 30
Management.................................................. 42
Certain Transactions........................................ 50
Principal Stockholders...................................... 52
Description of Capital Stock................................ 54
Shares Eligible for Future Sale............................. 56
Underwriting................................................ 58
Legal Matters............................................... 59
Experts..................................................... 60
Additional Information...................................... 60
Index to Financial Statements............................... F-1
</TABLE>
------------------------
"Student Advantage", "U-WIRE", "Virtual Backpack" and "The Main Quad" are
trademarks and service marks of Student Advantage. All other trademarks, service
marks or trade names referred to in this prospectus are the property of their
respective owners.
3
<PAGE> 6
SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This summary is not complete and may not contain all of the information that you
should consider before investing in our common stock. You should read the entire
prospectus carefully. Unless otherwise indicated, all information contained in
this prospectus assumes that the underwriters will not exercise their
over-allotment option immediately prior to this offering. This prospectus
contains forward-looking statements which involve risks and uncertainties.
Student Advantage's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth under "Risk Factors" and elsewhere in this prospectus.
THE COMPANY
Our Business............Student Advantage is dedicated to serving the needs of
college students through our leading membership program
and studentadvantage.com Web site. With our national
fee-based membership program, we have created a
community of over 1,000,000 student members. Our members
receive a variety of services and benefits, including
ongoing discounts on products and services offered by
national and local vendors. Through
studentadvantage.com, we are leveraging our membership
base, brand name, partnerships with corporations and
colleges, and existing online business with the
objective of becoming the leading online destination for
college students.
We believe that Student Advantage appeals to students,
businesses and schools because we provide a combination
of the following benefits:
- For students, a valuable program that offers ongoing
discounts, as well as online content, community and
e-commerce targeted at their particular needs,
- For businesses, targeted online and offline access to
an attractive demographic group through a trusted
brand, and
- For schools, a useful resource that may be offered to
their students.
Our position at the intersection of these three groups
has enabled us to create a powerful vehicle for
advertising and commerce directed at the student market.
Our Products and
Services..............Membership in Student Advantage provides students with
discounts on products and services offered by over 40
national partners, including Amtrak, AT&T, Foot Locker,
Greyhound, Staples and Tower Records, and over 12,000
local partners in 115 local markets. Student members
also receive SAM, the Student Advantage magazine.
A key component of our strategy is to make our Web site
the centerpiece of our membership program. We currently
provide content and services through
studentadvantage.com, including our proprietary U-WIRE
news feed and the Virtual Backpack, a service which
includes free e-mail, an online calendar, and online
document storage; community through online bulletin
boards and articles offering advice on student life; and
e-commerce through partners including Egghead.com, Music
Boulevard and 1-800-FLOWERS. We believe that our primary
role as a provider of information and services to
students, along with the Web-savvy nature of our student
membership base, makes the Internet ideally suited for
our business.
4
<PAGE> 7
We also provide tailored marketing services for
businesses seeking to market their products to college
students. Through our membership program and Web site,
we provide businesses a platform through which they can
reach a large, demographically attractive market. These
businesses benefit from targeted and continued access to
the student market, as well as our expertise in
designing and implementing effective marketing programs
to reach college students.
Our Market..............College students represent an attractive market
opportunity for businesses because of their significant
purchasing power and their tendency to retain brand
loyalties after graduation. According to Student Monitor
LLC, a market research company, college students spent
over $100 billion in the 1997-1998 academic year.
In the United States, there are over 15 million
full-time and part-time undergraduate and graduate
students at more than 3,000 university and college
campuses. This population is expected to grow as there
are currently 40 million children and young adults from
ages 10 to 19.
Our Strategy............Our objective is to be the leading online and offline
resource for college students. The key elements of our
strategy include the following:
- Strengthen our online destination for students,
- Continue to build the Student Advantage brand,
- Aggressively grow our membership,
- Enhance relationships with students, businesses and
schools, and
- Continue to pursue strategic acquisitions and
alliances
------------------------
Student Advantage's principal executive offices are located at 280 Summer
Street, Boston, Massachusetts 02210 and our telephone number at that location is
(617) 912-2011. Our Web site is located at www.studentadvantage.com. Information
contained on our Web site is not part of this prospectus.
------------------------
Except as otherwise noted, all information in this prospectus:
- Reflects the automatic conversion of all of our outstanding shares of
convertible preferred stock into an aggregate of 8,241,108 shares of
common stock upon completion of this offering;
- Reflects a three-for-one stock split of all of our outstanding shares of
common stock to be effected before completion of this offering; and
- Assumes no exercise of the underwriters' over-allotment option.
5
<PAGE> 8
THE OFFERING
Common stock offered.................... shares
Common stock to be outstanding after the
offering................................ shares(1)
Use of proceeds......................... To fund continued growth and
expansion of its business, capital
expenditures, product development,
potential acquisitions and other
general corporate purposes. See
"Use of Proceeds."
Proposed Nasdaq National Market
symbol.................................. STAD
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Set forth below are summary statements of operations data for the years
ended December 31, 1994, 1995, 1996, 1997 and 1998, and summary balance sheet
data as of December 31, 1998, on an actual basis and on a pro forma basis as
adjusted to give effect to (1) the sale by Student Advantage of shares of common
stock in this offering at an assumed initial offering price of $ per share,
after deducting the estimated underwriting discounts and commissions and
offering expenses payable by Student Advantage, and the application of the net
proceeds from this offering, and (2) the conversion of our convertible preferred
stock upon the consummation of this offering. This information should be read in
conjunction with the Financial Statements and Notes thereto appearing elsewhere
in this prospectus. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
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1994 1995 1996 1997 1998
----------- ----------- ------- ------- -------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Total revenue................................. $ 155 $ 448 $ 1,730 $ 3,792 $17,443
Total costs and expenses...................... 230 412 2,386 6,973 22,560
Net income (loss)............................. (75) 36 (657) (3,152) (5,115)
Basic and diluted net income (loss) per
share....................................... $ (0.01) $ 0.00 $ (0.05) $ (0.21) $ (0.32)
Shares used in computing basic and diluted net
income (loss) per share..................... 14,184 14,184 14,184 15,295 15,957
Unaudited pro forma basic and diluted net loss
per share(2)................................ $ -- $ -- $ -- $ -- $(0.24)
Shares used in computing unaudited pro forma
basic and diluted net loss per share........ -- -- -- -- 21,128
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
----------------------
PRO FORMA
ACTUAL AS ADJUSTED
-------- -----------
<S> <C> <C>
BALANCE SHEET DATA
Cash and cash equivalents................................... $ 5,048
Working capital............................................. (2,247)
Total assets................................................ 9,934
Deferred revenue............................................ 6,666
Stockholders' equity (deficit).............................. (10,741)
</TABLE>
- ---------------
(1) This information is based on the number of shares outstanding as of March
31, 1999. Excludes 2,222,550 shares subject to outstanding options as of
March 31, 1999 at a weighted average exercise price of $0.35 per share.
(2) Pro forma information is based on the conversion of all outstanding shares
of our preferred stock into shares of common stock.
6
<PAGE> 9
RISK FACTORS
You should carefully consider the following risks before making an
investment decision. The risks described below are not the only ones that we
face. Additional risks that are not yet identified or that we currently think
are immaterial may also impair our business operations. Our business, operating
results and financial condition could be adversely affected by any of the
following risks. The trading price of our common stock could decline due to any
of these risks, and you could lose all or part of your investment. You should
also refer to the other information set forth in this prospectus, including our
financial statements and the related notes.
This prospectus contains forward-looking statements that involve risks and
uncertainties. These forward-looking statements are usually accompanied by words
such as "believes," "anticipates", "plans", "expects" and similar expressions.
Our actual results may differ materially from the results discussed in the
forward-looking statements because of factors such as the Risk Factors discussed
below.
WE HAVE EXPERIENCED LOSSES IN THE PAST AND EXPECT TO CONTINUE TO EXPERIENCE
LOSSES IN THE NEAR FUTURE
We have not achieved profitability and expect to continue to incur
operating losses for the foreseeable future. We incurred net losses of $3.2
million in 1997 and $5.1 million in 1998. As of December 31, 1998, our
accumulated deficit was $11.6 million. We expect to continue to incur
significant operating and capital expenditures and, as a result, we will need to
generate significant revenue to achieve and maintain profitability.
We cannot assure you that we will achieve sufficient revenue for
profitability. Even if we do achieve profitability, we cannot assure you that we
can sustain or increase profitability on a quarterly or annual basis in the
future. If revenue grows more slowly than we anticipate, or if operating
expenses exceed our expectations or cannot be adjusted accordingly, our
business, results of operations and financial condition will be materially and
adversely affected.
WE ARE DEPENDENT UPON AT&T FOR A LARGE PERCENTAGE OF OUR REVENUE
We have an exclusive relationship with AT&T through which AT&T pays us for
a variety of goods and services, including:
- memberships provided free to students with an AT&T calling card,
- marketing services,
- advertising in our media products, such as our Web site and SAM, the
Student Advantage magazine, and
- sponsorship of certain of our products and services, such as the Virtual
Backpack.
Our agreement with AT&T prevents us from providing our goods and services
to other telecommunications companies. Our agreement with AT&T also precludes us
from entering into a relationship with another sponsor that will distribute our
memberships free to students as an incentive or through any promotion.
In 1997, we derived $2.4 million, or 62%, of our total revenue from AT&T.
In 1998, we derived $11.8 million, or 68%, of our total revenue from AT&T. Our
relationship with AT&T has accounted for most of our members to date. These
members are obtained through distribution of Student Advantage memberships to
students who enroll for an AT&T telecommunications service. In addition, most of
our commerce revenue is currently attributable to fees that we earn from AT&T
for obtaining completed calling card applications from students. There can be no
assurance that we will be successful in expanding our membership base
independent of our relationship with AT&T.
The termination dates of our current agreements with AT&T have been
extended until June 2001. However, AT&T may terminate these agreements upon 120
days' prior notice, subject to payment of a termination fee in certain cases. In
addition, AT&T can terminate the current agreements if Raymond V.
7
<PAGE> 10
Sozzi, Jr. is no longer employed as our president, or if he no longer owns at
least five percent of our capital stock. The termination of our relationship
with AT&T would have a material adverse effect on our business. Our relationship
with AT&T could hinder our ability to attract additional national partners, in
particular partners who may be interested in purchasing memberships for
distribution to students.
WE HAVE A LIMITED OPERATING HISTORY
We have a limited operating history on which an investor can evaluate our
business. Our operations began in 1992. An investor in our common stock must
consider the risks and difficulties frequently encountered by early stage
companies implementing an Internet strategy. These risks include our ability to:
- sustain historical revenue growth rates,
- implement our business model,
- manage our expanding operations,
- retain and attract members and maintain their satisfaction,
- maintain and increase our alliances with partners, advertisers, colleges
and universities,
- introduce new and enhanced Web and offline content, products and
services, and
- respond to competitive developments.
If we do not successfully manage these risks, our business, results of
operations and financial condition will be materially adversely affected. We
cannot assure you that we will successfully address these risks or that our
business strategy will be successful.
OUR BUSINESS IS HIGHLY DEPENDENT UPON OUR PRESIDENT AND CHIEF EXECUTIVE OFFICER
We are highly dependent on our president and chief executive officer,
Raymond V. Sozzi, Jr., the loss of whom would adversely affect our future
success. If Mr. Sozzi or any of our other officers or key employees leave our
company, the relationships that they have with our corporate partners and
universities could be lost.
WE MAY NOT SUCCESSFULLY IMPLEMENT OUR INTERNET STRATEGY
In order to successfully implement our Internet strategy, we must:
- establish our Web site as the primary vehicle for delivery of our
products and services, including member registration and renewal,
information regarding national and local partners, and customer service,
- expand our Web site to include more content and services for students and
encourage our members to use the site so that it becomes more attractive
for advertisers, and
- establish our Web site as an effective e-commerce platform.
Our failure to successfully implement our Internet strategy could have a
material adverse effect on our business.
THE INTERNET PORTION OF OUR BUSINESS MODEL IS UNPROVEN
The profit potential for an Internet community business model is unproven.
Our ability to generate significant revenues from advertisers, sponsors and
other partners in connection with online activities will depend, in part, on our
ability to generate sufficient user traffic with demographic characteristics
attractive to our advertisers. The intense competition among Web sites that sell
online advertising has led to the creation of a number of pricing alternatives
for online advertising. These alternatives make it difficult for us to project
future levels of advertising and other Internet-related revenue and applicable
gross margins related to our online offerings that can be sustained by us or the
online advertising industry in general. Although we do not currently derive a
substantial portion of our revenue from Internet advertising and
8
<PAGE> 11
other Internet-related activities, our business model depends in part on
increasing the amount of such revenue.
OUR BUSINESS IS SEASONAL AND SUBJECT TO SIGNIFICANT FLUCTUATIONS
Our operating results are dependent upon the college student market and
vary seasonally based upon the typical school year. We tend to sell most of our
memberships in the beginning of the fall academic term and the beginning of the
spring academic term. In addition, all of our memberships expire on August 31 of
each year. Because we recognize revenue from memberships ratably over the period
from the time of subscription until the end of our membership year, our
subscription revenue is typically higher in the second and third quarters than
in the first and fourth quarters of each fiscal year. In 1998, our revenue from
advertising, marketing services and commerce was higher in the third quarter
than in other quarters in part because of increased activity associated with the
commencement of the school year. We believe this seasonality may also occur in
subsequent years.
In addition, our revenue and operating results may vary significantly from
quarter to quarter for a number of other factors. Many of these factors are
outside of our control and include:
- our ability to successfully integrate operations and technologies from
acquisitions or other business combinations,
- the availability of corporate partners and colleges and universities to
support our membership programs,
- our ability to expand our online presence,
- changes in the growth rate of Internet usage,
- new sites, services or products introduced by us or our competitors, and
- increased competition.
You should not rely on quarter-to-quarter comparisons of our operating
results or our operating results for any particular quarter as indicative of our
future performance. It is possible that in some future periods our operating
results may be below the expectations of public market analysts and investors.
In this event, the price of our common stock might fall.
OUR OPERATING RESULTS DEPEND ON SELLING NEW MEMBERSHIPS EVERY YEAR
A significant portion of our revenue is derived from membership fees.
Members must join our program each year. A significant percentage of our members
graduate each year and, therefore, do not renew their memberships. Our revenue
growth is highly dependent upon our ability to market the value of our
membership to college students and to retain members on a yearly basis. A
failure to acquire new members or renew current members could have a material
adverse effect on our business.
OUR OPERATING RESULTS DEPEND ON OUR ABILITY TO MAINTAIN AND INCREASE BUSINESS
ALLIANCES AND UNIVERSITY RELATIONSHIPS
We are dependent upon our partners, both national and local, to provide our
members with discounts on their products and services. We are also dependent on
maintaining college and university relationships to market and sell our products
and services. Our ability to maintain these alliances and relationships and to
develop new alliances and relationships is critical to our ability to maintain
our members. A failure to acquire or maintain partners and relationships could
have a material adverse effect on our business. In addition, our agreements with
a number of our partners preclude us from entering into similar arrangements
with their competitors. This restriction may prevent us in some cases from
offering attractive additional discounts to our members.
9
<PAGE> 12
COLLEGES AND UNIVERSITIES ARE INCREASINGLY RELUCTANT TO PERMIT BUSINESSES TO
MARKET PRODUCTS AND SERVICES ON CAMPUS
Colleges and universities are becoming increasingly wary of businesses
which market products and services to their students. Many colleges and
universities are seeking to decrease or eliminate such marketing. In particular,
colleges and universities are concerned that many students have incurred
substantial levels of credit card debt. As a result, colleges and universities
often attempt to prevent credit card companies and other companies that offer
credit from marketing to their students. We are sometimes mistaken for a credit
card company because we give students a plastic card and a unique identification
number to represent their membership. This sometimes makes it difficult for us
to gain access to college and university students. Any inability to directly
contact students on campus could have a material adverse effect on our business.
WE FACE SIGNIFICANT COMPETITION ON THE INTERNET
Many Web sites compete for consumers' and advertisers' attention and
spending. We believe that our ability to compete depends upon many factors,
including the following:
- the market acceptance of our Web site and online services,
- the success of our brand building and sales and marketing efforts,
- the performance, price and reliability of services developed by us or our
competitors,
- the effectiveness of our customer service efforts,
- the ability of our competitors to maintain or establish cooperative
relationships among themselves or with strategically aligned third
parties, and
- the emergence of new competitors.
We compete for members and advertisers online with the following types of
companies:
- online services or Web sites targeted at college students, and
- Web search and retrieval and other online service companies, commonly
referred to as portals, such as Excite, Infoseek, Lycos and Yahoo!.
OUR MEMBERSHIP PROGRAM EXPERIENCES SIGNIFICANT COMPETITION FROM OTHER MARKETING
ACTIVITIES
We compete for client marketing budget dollars with other marketing
activities and, in particular, other forms of direct marketing activities, such
as direct mail. In recent years, there have been significant advances in new
forms of direct marketing, such as the development of interactive shopping and
data collection through television, the Internet and other media. Many industry
experts predict that electronic interactive commerce, such as shopping and
information exchange via the Internet, will proliferate significantly in the
foreseeable future. To the extent such proliferation occurs, it could have a
material adverse effect on the demand for membership programs.
WE MAY BE UNABLE TO MAKE ATTRACTIVE ACQUISITIONS OR INTEGRATE ACQUIRED COMPANIES
We plan to acquire or make investments in complementary businesses,
products, services or technologies. However, we cannot assure you that we will
be able to identify suitable acquisition or investment candidates. Even if we do
identify suitable candidates, we cannot assure you that we will be able to make
such acquisitions or investments on commercially acceptable terms. If we buy a
business, we could have difficulty in assimilating that company's personnel,
operations, products, services or technologies into our operations. These
difficulties could disrupt our ongoing business, distract our management and
employees, increase our expenses and adversely affect our results of operations.
Furthermore, we may incur debt or issue equity securities to pay for any future
acquisitions. The issuance of equity securities could be dilutive to our
existing stockholders.
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WE MAY BE UNABLE TO SUCCESSFULLY MANAGE CHANGES IN OUR BUSINESS
We have experienced a period of significant growth. This growth has placed
significant demands on our management and strains on our resources. Revenue
increased from approximately $1.7 million in 1996 to $17.4 million in 1998.
During that same time period we increased from fewer than 50 to more than 150
employees.
Our ability to manage changes in our business will depend on our ability to
continue to enhance our operating, financial and management information systems.
We cannot assure you that our personnel, systems and controls will be adequate
to support our growth, if any. If we are unable to manage change effectively,
maintain the quality of our products and services and retain key personnel, our
operating results and financial condition could be significantly affected.
We do not expect our current financial and management information systems
to be adequate to support our operations in the future. We expect to replace our
current accounting system within the next year. If we incur delays or
difficulties in implementing an appropriate accounting system, our business
could be adversely affected.
OUR MANAGEMENT TEAM HAS NO EXPERIENCE IN RUNNING A PUBLIC COMPANY
Our management team has not had any experience in a leadership role in a
public company. We cannot assure you that the management team as currently
configured will be able to successfully transition into the leadership role of a
public company. The failure of the management team to adequately handle this
challenge could have a material adverse effect on our business.
WE MUST ATTRACT AND RETAIN HIGHLY-QUALIFIED PERSONNEL IN A COMPETITIVE LABOR
MARKET
We need to hire additional members of our management team and other key
employees. Competition for such personnel is intense. We have experienced, and
we expect to continue to experience in the future, difficulty in hiring highly
skilled employees with the appropriate qualifications. If we do not succeed in
attracting new personnel or retaining and motivating our current personnel, our
business could be adversely affected.
TO EXPAND OUR BUSINESS, WE MAY NEED ADDITIONAL CAPITAL, AND THE FUTURE FUNDING
OF THESE CAPITAL NEEDS IS UNCERTAIN
We require substantial working capital to fund our business. While we
believe that this offering will provide us with sufficient funding for the
foreseeable future, if capital requirements vary materially from those currently
planned, we may require additional financing.
Additional funds raised through the issuance of equity securities may have
the following negative effects on the then current common stockholders:
- dilution in percentage of ownership in our company, and
- the rights, preferences or privileges of the new security holders may be
senior to those of the common stockholders.
Additional financing may not be available when needed on terms favorable to
us or at all. Our failure to raise additional funds, if needed, may result in
our inability to:
- develop or enhance our services,
- take advantage of future opportunities, or
- respond to competitive pressures.
11
<PAGE> 14
OUR SYSTEMS MAY FAIL OR EXPERIENCE A SLOWDOWN
Substantially all of our communications hardware and certain of our other
computer hardware operations are located at USWeb/CKS's facilities in New York.
Fire, floods, earthquakes, power loss, telecommunications failures, break-ins
and similar events could damage these systems. Computer viruses, electronic
break-ins or other similar disruptive problems could also adversely affect our
Web site. Our business could be adversely affected if our systems were affected
by any of these occurrences. Our insurance policies may not adequately
compensate us for any losses that may occur due to any failures or interruptions
in our systems. We do not presently have any secondary "off-site" systems or a
formal disaster recovery plan.
Our Web site must accommodate a high volume of traffic and deliver
frequently updated information. Our Web site has in the past and may in the
future experience slower response times or decreased traffic for a variety of
reasons. These types of occurrences could cause users to perceive our Web site
as not functioning properly and therefore cause them to use another Web site or
other methods to obtain information.
In addition, our users depend on Internet service providers, online service
providers and other Web site operators for access to our Web site. Many of them
have experienced significant outages in the past, and could experience outages,
delays and other difficulties due to system failures unrelated to our systems.
WE ARE DEPENDENT ON THIRD PARTIES FOR SOFTWARE, SYSTEMS AND RELATED SERVICES
We are dependent on various third parties for software, systems and related
services. For example, a third party provides warehousing, distribution,
fulfillment, mail, and data processing services for us. As a result, our ability
to deliver various services to our users may be adversely affected by the
failure of these third parties to provide reliable software, systems and related
services to us.
We have in the past and may in the future experience slower response times
or delays in the processing of applications for students and the delivery of
membership identification cards to our members. Many of these delays have been
caused by third parties upon which we rely for fulfillment services. If we are
unsuccessful in providing our members with membership identification cards or
delivering products and services on a timely basis, our business may be
adversely affected.
WE MAY BE SUED FOR INFORMATION RETRIEVED FROM THE INTERNET
Inappropriate use of our Internet services
We may be subjected to claims for defamation, negligence, copyright or
trademark infringement, personal injury or other legal theories relating to the
information we publish on our Web site or in our magazine. These types of claims
have been brought, sometimes successfully, against online services as well as
other print publications in the past. We could also be subjected to claims based
upon the content that is accessible from our Web site through links to other Web
sites or through content and materials that may be posted by members in chat
rooms or bulletin boards. We also offer e-mail services, which may subject us to
potential risks, such as liabilities or claims resulting from unsolicited
e-mail, lost or misdirected messages, illegal or fraudulent use of e-mail or
interruptions or delays in e-mail service. Our insurance may not adequately
protect us against these types of claims.
Identification of Web site visitors
Web sites typically place certain "cookies" on a user's hard drive without
the user's knowledge or consent. Student Advantage and other Web sites use
cookies for a variety of reasons, including the collection of data derived from
the user's Internet activity. Most currently available Web browsers allow users
to remove cookies at any time or to prevent cookies from being stored on their
hard drive. In addition, some commentators, privacy advocates and governmental
bodies have suggested limiting or eliminating the use of cookies. Any reduction
or limitation in the use of cookies could limit the effectiveness of our sales
and marketing efforts. In addition, the European Union recently adopted a
12
<PAGE> 15
directive addressing data privacy that may limit the collection and use of
certain information regarding Internet users. This directive may limit our
ability to target advertising or collect and use information in certain European
countries.
Misappropriation of personal information
Any penetration of our network security or other misappropriation of our
members' personal or credit card information could subject us to liability. We
may be liable for claims based on unauthorized purchases with credit card
information, impersonation or other similar fraud claims. Claims could also be
based on other misuses of personal information, such as for unauthorized
marketing purposes. These claims could result in litigation. In addition, the
Federal Trade Commission and several states have investigated the use by certain
Internet companies of personal information. We could incur expenses if new
regulations regarding the use of personal information are introduced or if our
privacy practices were investigated.
WE MAY BE UNABLE TO RESPOND TO THE RAPID TECHNOLOGICAL CHANGE IN OUR INDUSTRY
Our market is characterized by rapidly changing technologies, frequent new
product and service introductions and evolving industry standards. The recent
growth of the Internet and intense competition in our industry exacerbates these
market characteristics. To achieve our goals, we need to effectively integrate
the various software programs and tools required to enhance and improve our
product offerings and manage our business. Our future success will depend on our
ability to adapt to rapidly changing technologies by continually improving the
performance features and reliability of our services. We may experience
difficulties that could delay or prevent the successful development,
introduction or marketing of new products and services. In addition, our new
enhancements must meet the requirements of our current and prospective members
and must achieve significant market acceptance. We could also incur substantial
costs if we need to modify our service or infrastructures to adapt to these
changes.
OUR INTELLECTUAL PROPERTY RIGHTS MAY BE VIOLATED OR SUBJECT TO LITIGATION
We believe that protection of our copyrights, service marks, trademarks,
trade secrets, proprietary technology and similar intellectual property is
critical to our success. We rely on the following mechanisms to protect such
intellectual property:
- trademark and copyright law,
- trade secret protection, and
- confidentiality agreements with employees, customers, independent
contractors, partners and others.
Despite our best efforts, we cannot assure you that our intellectual
property rights will not be infringed, violated or legally imitated. Failure to
protect our intellectual property could have a material adverse effect on our
business.
We have been subject to claims and expect to be subject to legal
proceedings and claims in the future for infringement of the trademark and other
intellectual property rights of third parties. Any such proceedings or claims
could have a material adverse effect on our business, financial condition and
results of operations.
THE FAILURE OF COMPUTER SYSTEMS AND SOFTWARE PROGRAMS TO BE YEAR 2000 COMPLIANT
COULD NEGATIVELY IMPACT OUR BUSINESS
Many currently installed computer systems and software products only accept
two digits to identify the year in any date. Thus, the year 2000 will appear as
"00", which the system might consider to be the year 1900 rather than the year
2000. This could result in system failures, delays or miscalculations causing
disruptions to our operations.
13
<PAGE> 16
We are currently conducting an inventory, and developing testing
procedures, for all software and other systems that we believe might be affected
by Year 2000 issues. Since third parties developed and currently support many of
the systems that we use, a significant part of this effort will be to ensure
that these third-party systems are Year 2000 compliant. We plan to confirm this
compliance through a combination of the representation by these third parties of
their products' Year 2000 compliance, as well as specific testing of these
systems. The failure of systems maintained by third parties to be Year 2000
compliant could cause us to incur significant expense to remedy any problems,
reduce our revenues from such third parties or otherwise seriously damage our
business. A significant Year 2000-related disruption of the network services or
equipment that third-party vendors provide to us could also cause our members or
other users to consider seeking alternate providers or cause an unmanageable
burden on our customer service and technical support.
Our failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, some of our normal business activities or
operations.
CERTAIN CURRENT STOCKHOLDERS OWN A LARGE PERCENTAGE OF OUR VOTING STOCK
Following the closing of this offering, our officers, directors and
affiliated entities together will beneficially own approximately % of our
outstanding common stock ( % if the underwriters' over-allotment option is
exercised in full). As a result, these stockholders may, as a practical matter,
be able to control all matters requiring stockholder approval and, thereby, our
management and affairs. Matters that typically require stockholder approval
include:
- election of directors,
- merger or consolidation, and
- sale of substantially all of our assets.
This concentration of ownership may delay, deter or prevent acts that would
result in a change of control, which in turn could reduce the market price of
our common stock.
THE PRICE OF OUR STOCK COULD BE EXTREMELY VOLATILE
We cannot predict the extent to which investor interest in Student
Advantage will lead to the development of a trading market or how liquid that
market might become. The initial public offering price for the shares will be
determined by negotiations between us and the underwriters' representatives and
may not be indicative of prices that will prevail in the trading market. The
stock market has experienced significant price and volume fluctuations, and the
market prices of technology companies, particularly Internet-related companies,
have been highly volatile. Investors may not be able to resell their shares at
or above the initial public offering price.
In the past, following periods of volatility in the market price of a
company's securities, securities class action litigation has often been
instituted. Litigation could result in substantial costs and a diversion of
management's attention and resources.
SHARES ELIGIBLE FOR PUBLIC SALE AFTER THIS OFFERING COULD ADVERSELY AFFECT OUR
STOCK PRICE
After this offering, there will be outstanding shares
of our common stock. There will be shares outstanding if the
underwriters' over-allotment option is exercised in full. Of these shares, the
shares sold in this offering will be freely tradeable except for any shares
purchased by our "affiliates" as defined in Rule 144 under the Securities Act.
The remaining shares of common stock held by existing
stockholders will be "restricted securities" and will become eligible for sale
only if registered or if they qualify for an exemption from registration under
Rules 144, 144(k) or 701 under the Securities Act. Upon expiration of lock-up
agreements with the underwriters, 180 days after the date of this prospectus,
shares of common stock will be eligible for resale in
accordance with the provisions of Rule 144. In addition, certain stockholders
holding an aggregate of
14
<PAGE> 17
16,746,186 shares of common stock can require us to register their shares for
public sale. Upon the effectiveness of any such registration, all shares covered
by the registration statement would be freely transferable.
We cannot predict if future sales of our common stock, or the availability
of our common stock for sale, will adversely affect the market price of our
common stock.
OUR CHARTER DOCUMENTS MAY INHIBIT A TAKEOVER
Provisions in our charter and bylaws may have the effect of delaying or
preventing a change of control or changes in our management that a stockholder
might consider favorable. These provisions include, among others:
- the division of the Board of Directors into three separate classes,
- the right of the Board to elect a director to fill a vacancy created by
the expansion of the Board, and
- the requirement that a special meeting of stockholders be called by the
Chairman of the Board, President or Board of Directors.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements under "Summary," "Risk Factors," "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business" and elsewhere in this prospectus constitute forward-looking
statements. These statements relate to future events or our future performance,
and are identified by terminology such as "may," "will," "should," "expects,"
"scheduled," "plans," "intends," "anticipates," "believes," "estimates,"
"potential," or "continue" or the negative of such terms or other comparable
terminology. These statements are only predictions. Actual events or results may
differ materially. In evaluating these statements, you should specifically
consider various factors, including the risks outlined under "Risk Factors."
These factors may cause our actual results to differ materially from any
forward-looking statement.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance, or achievements. Moreover, neither we nor any other
person assumes responsibility for the accuracy and completeness of such
statements. We are under no duty to update any of the forward-looking statements
after the date of this prospectus to conform such statements to actual results.
15
<PAGE> 18
USE OF PROCEEDS
The net proceeds we will receive from the sale of shares of common
stock offered by us are estimated to be $ ($ if the underwriters'
over-allotment option is exercised in full) after deducting the estimated
underwriting discounts and commissions and offering expenses payable by us and
assuming an initial public offering price of $ .
The principal purposes of this offering are:
- to increase our equity capital,
- to create a public market for our common stock,
- to facilitate future access by us to public equity markets,
- to provide increased visibility and credibility in a marketplace where
several of our current and potential competitors are, or may in the
future be, public companies, and
- to enhance our ability to use our common stock as consideration for
acquisitions and as a means of attracting and retaining key employees.
We expect to use the net proceeds from this offering for working capital
and other general corporate purposes, capital expenditures, growth and expansion
of our business, product development and acquisitions. We may use approximately
$ to repay outstanding indebtedness under our bank line of credit,
which bears interest at % and is due on June 30, 2000. We have not
identified other specific uses for such proceeds and management will have
discretion over their use and investment. Pending such uses, we intend to invest
the net proceeds from this offering in investment grade, interest-bearing
securities or guaranteed obligations of the U.S. Government.
We intend to seek acquisitions of businesses, products and technologies
that are complementary to us, and a portion of the net proceeds may be used for
such acquisitions. While we discuss potential acquisitions from time to time, we
currently have no commitments or agreements for any such acquisitions and there
can be no assurances that any acquisitions will be made.
DIVIDEND POLICY
We currently intend to retain earnings, if any, to fund the development and
growth of our business and do not anticipate paying cash dividends in the
foreseeable future. Payment of future dividends, if any, will be at the
discretion of our Board of Directors after taking into account various factors,
including our financial condition, operating results, current and anticipated
cash needs and plans for expansion. Our credit facility contains restrictive
covenants that limit our ability to pay cash dividends or make stock repurchases
without the prior written consent of the lender.
16
<PAGE> 19
CAPITALIZATION
The following table sets forth the capitalization of Student Advantage as
of December 31, 1998:
- on an actual basis,
- on a pro forma basis giving effect to the conversion of all outstanding
shares of preferred stock into common stock upon the closing of the
offering, and
- on a pro forma as adjusted basis to reflect the sale by Student Advantage
of shares of common stock offered hereby at the initial public
offering price of $ per share, after deducting estimated
underwriting discounts and commissions and offering expenses.
<TABLE>
<CAPTION>
DECEMBER 31, 1998
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- ----------- -----------
<S> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C>
Redeemable convertible preferred stock, $1.00 par value:
4,000,000 shares authorized: 2,747,036 shares issued
and outstanding actual; no shares issued and
outstanding pro forma and pro forma as adjusted.... $ 10,196 $ -- $ --
Stockholders' equity (deficit):
Common stock, $0.01 par value; 45,000,000 shares
authorized actual and pro forma and 100,000,000
shares authorized pro forma as adjusted; and
16,133,892 shares issued and outstanding actual;
24,375,000 shares issued and outstanding pro forma;
shares issued and outstanding pro forma as
adjusted........................................... 183 272
Additional paid in capital........................... 4,692 14,799 --
Accumulated deficit.................................. (11,623) (11,623) --
Treasury stock (at cost)............................. (630) (630) --
Deferred compensation................................ (3,363) (3,363) --
-------- -------- --------
Total stockholders' equity (deficit)...................... (10,741) (545) --
-------- -------- --------
Total capitalization...................................... $ (545) $ (545) $ --
======== ======== ========
</TABLE>
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<PAGE> 20
DILUTION
The pro forma net tangible book value of Student Advantage at December 31,
1998 was $ , or $ per share of common stock. Pro forma net tangible book
value per share represents the amount of total tangible assets less total
liabilities, divided by the number of pro forma shares of common stock
outstanding after giving effect to the conversion of all shares of preferred
stock. After giving effect to the sale of shares of common stock
offered hereby by Student Advantage at the assumed initial offering price of
$ per share and after deducting estimated underwriting discounts and
commissions and offering expenses, the pro forma net tangible book value as of
December 31, 1998 would have been $ or $ per share. This represents an
immediate increase in pro forma net tangible book value of $ per share to
existing stockholders and an immediate dilution of $ per share to new
investors purchasing shares of common stock in the offering. The following table
illustrates this dilution:
<TABLE>
<S> <C>
Assumed initial public offering price per share........ $
Pro forma net tangible book value per share at
December 31, 1998...................................
Increase attributable to the offering................
Pro forma net tangible book value per share after the
offering..............................................
Net tangible book value dilution per share to new
investors in the offering.............................
</TABLE>
The following table summarizes as of December 31, 1998 on the pro forma
basis described above, the total number of shares and consideration paid to
Student Advantage and the average price per share paid by the existing
stockholders and by new investors purchasing shares of common stock in the
offering at the initial public offering price of $ per share (before
deducting the estimated underwriting discounts and commissions and offering
expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- --------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders................... % $ % $
New investors...........................
---------- ------ ----------- ------
Totals........................
========== ====== =========== ======
</TABLE>
None of the foregoing tables or calculations assumes that any options
outstanding as of March 31, 1999 will be exercised. If all outstanding options
were exercised on the date of the closing of this offering, investors purchasing
shares in the offering would suffer total dilution of $ per share.
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<PAGE> 21
SELECTED FINANCIAL DATA
The following selected financial data are derived from the financial
statements of Student Advantage, Inc. The selected financial data as of December
31, 1997 and 1998, and for each of the three years in the period ended December
31, 1998, are derived from financial statements which have been audited by
PricewaterhouseCoopers LLP, independent accountants. These financial statements
are included elsewhere in this prospectus. The selected financial data as of
December 31, 1996 are derived from financial statements which have been audited
by PricewaterhouseCoopers LLP, and the balance sheet data for these financial
statements are not included elsewhere in this prospectus. The selected financial
data as of December 31, 1994 and 1995 and for each of the two years in the
period ended December 31, 1995 are derived from unaudited financial statements,
which are not included in this prospectus. The data set forth below should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Financial Statements and the
related Notes included elsewhere in this prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1994 1995 1996 1997 1998
----------- ----------- ------- ------- -------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenue
Subscription......................................... $ 131 $ 420 $ 1,093 $ 2,971 $ 7,174
Other................................................ 24 28 637 821 10,269
------ ------ ------- ------- -------
Total revenue..................................... 155 448 1,730 3,792 17,443
------ ------ ------- ------- -------
Costs and expenses
Cost of subscription revenue......................... 126 160 543 2,628 2,442
Cost of other revenue................................ -- -- 506 309 7,331
Product development.................................. 19 62 507 1,469 2,588
Sales and marketing.................................. 57 110 356 843 4,717
General and administrative........................... 27 79 437 1,485 3,647
Depreciation and amortization........................ 1 1 37 239 1,027
Stock-based compensation............................. -- -- -- -- 808
------ ------ ------- ------- -------
Total costs and expenses.......................... 230 412 2,386 6,973 22,560
------ ------ ------- ------- -------
Income (loss) from operations.......................... (75) 36 (656) (3,181) (5,117)
------ ------ ------- ------- -------
Interest income (expense), net......................... -- -- (1) 29 2
------ ------ ------- ------- -------
Net income (loss)...................................... $ (75) $ 36 $ (657) $(3,152) $(5,115)
====== ====== ======= ======= =======
Basic and diluted net loss per share................... $(0.01) $(0.00) $ (0.05) $ (0.21) $ (0.32)
====== ====== ======= ======= =======
Shares used in computing basic and diluted net loss per
share................................................ 14,184 14,184 14,184 15,295 15,957
====== ====== ======= ======= =======
Unaudited pro forma basic and diluted net loss per
share................................................ $ -- $ -- $ -- $ -- $ (0.24)
====== ====== ======= ======= =======
Shares used in computing unaudited pro forma basic and
diluted net loss per share........................... -- -- -- -- 21,128
====== ====== ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1995 1996 1997 1998
----------- ----- ------- --------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA
Cash and cash equivalents................................... $ 8 $ 26 $ 1,904 $ 5,048
Working capital............................................. (389) (667) (4,836) (2,247)
Total assets................................................ 97 256 2,745 9,934
Deferred revenue............................................ 183 276 5,668 6,666
Stockholders' deficit....................................... (302) (702) (4,335) (10,741)
</TABLE>
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<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following should be read in conjunction with Student Advantage's
Financial Statements and related Notes and the other financial information
appearing elsewhere in this prospectus. In addition to historical information,
the following discussion and other parts of this prospectus contain
forward-looking information that involves risks and uncertainties. Student
Advantage's actual results could differ materially from those anticipated by
such forward-looking information due to factors discussed under "Risk Factors"
and elsewhere in this prospectus.
OVERVIEW
Student Advantage is dedicated to serving the needs of college students
through its leading membership program and Web site. Our revenue is generated
from subscription revenue and other revenue.
Subscription revenue is derived from membership sales. Memberships are sold
in three different ways. Most are sold to AT&T and distributed in conjunction
with an AT&T calling card. The membership cards associated with these membership
sales are co-branded and serve as both the Student Advantage membership
identification card and an AT&T calling card. We earn a fee from AT&T for each
of these memberships, with a current minimum commitment by AT&T of 1.25 million
memberships per academic year. During the years ended December 31, 1997 and
1998, AT&T accounted for approximately 77% and 95% of subscription revenue.
Memberships are also sold by Student Advantage to colleges, universities and
university organizations for distribution free of charge to students. In
addition, Student Advantage sells memberships directly to students for a
membership fee that is currently $20 per year. Subscription revenue is
recognized ratably from the date of subscription to the end of the annual
membership period, which ends on August 31 of each year.
Other revenue includes advertising, marketing service and commerce revenue.
Advertising revenue consists primarily of fees for advertisements placed in SAM,
the Student Advantage magazine, sponsorship fees paid by vendors for inclusion
in the member guide, and fees for banner advertisements and sponsorships on our
Web site. Marketing services revenue is derived primarily from providing
tailored marketing services to businesses seeking to market their products and
services to college students. These services include organizing and executing
marketing tours that travel to college campuses, staffing tables in college
locations to solicit potential student customers on behalf of businesses and
providing media planning and placement. Commerce revenue includes primarily
transaction-based fees earned for reselling products and services on behalf of
business partners. To date, commerce revenue has included primarily fees that we
receive from AT&T for obtaining completed applications from students for AT&T
calling cards. In connection with each application accepted by AT&T, we also
earn membership fees that are included in subscription revenue.
We began operations in 1992 as a sole proprietorship, converted to a
general partnership in 1995, converted to a limited liability company in 1996
and became a C Corporation in 1998. From inception through December 1997, our
revenue was derived primarily from annual membership fees. Since that time, we
have expanded our product and service offerings through internal growth as well
as acquisitions.
In December 1997, we completed our acquisition of The Main Quad, Inc. which
owned and operated Web sites focused on providing content for students. These
Web sites serve as the basis for Student Advantage's current online activities.
In January 1998, we completed our acquisition of Collegiate Advantage, Inc. a
provider of marketing and promotional services to businesses targeting college
students. The acquisition of Collegiate Advantage marked our entrance into the
marketing services business. These acquisitions were accounted for under the
purchase method of accounting, and the results of operations of each of the
acquired companies have been included in our financial statements since their
respective dates of acquisition. Goodwill and other intangible assets in the
aggregate amount of $1.4 million were recorded in connection with these and
other acquisitions and are being amortized over the economic lives of the
related assets, ranging from two to five years. As of December 31, 1998, a
balance of approximately
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<PAGE> 23
$617,000 remained to be amortized. We may be required to pay additional
contingent consideration, estimated to be approximately $625,000, to the former
owners of Collegiate Advantage.
On April 1, 1999, Student Advantage completed its acquisitions of The
Travel Holding Group, LLC and The Campus Agency, LLC. The Campus Agency provides
media planning and strategy consulting services to the U.S. student travel
market. The Travel Holding Group is a reseller of Eurail passes. These
acquisitions have been accounted for under the purchase method of accounting,
and the results of operations of each company will be included in our results
beginning on the acquisition date. Goodwill and other intangible assets in the
aggregate amount of $280,000 were recorded in connection with these acquisitions
and will be amortized over three years. Because the historical results of Campus
Agency and Travel Holding Group are not material, pro forma financial
information has not been presented.
In the future we may pursue additional acquisitions to obtain complementary
products, services and technologies. There are no assurances that the
acquisitions we already have completed, or any acquisitions that we may complete
in the future, will produce the anticipated revenue, earnings or business
synergies.
We recorded deferred compensation of approximately $4.2 million in the year
ended December 31, 1998, representing the difference between the exercise price
of stock options granted in 1998 and the fair market value of the underlying
common stock at the date of grant. The difference is recorded as a reduction of
stockholders' equity and is being amortized over the vesting period of the
applicable options, typically four years. Of the total deferred compensation
amount, approximately $800,000 had been amortized as of December 31, 1998. The
amortization of deferred compensation is recorded as an operating expense. We
currently expect to amortize the following remaining amounts of deferred
compensation annually:
<TABLE>
<S> <C>
1999................................................... $1,070,000
2000................................................... 1,015,000
2001................................................... 958,000
2002................................................... 320,000
</TABLE>
Student Advantage has experienced substantial net losses since 1996 and, as
of December 31, 1998, had an accumulated deficit of $11.6 million. Student
Advantage expects to increase its expenditures in all areas in order to execute
its business plan. As a result, Student Advantage believes that it will continue
to incur operating losses and negative cash flows from operations for the
foreseeable future and that the rate at which such losses will be incurred may
increase from current levels.
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<PAGE> 24
RESULTS OF OPERATIONS
The following table sets forth results of operations data for Student
Advantage as a percentage of total revenue for the periods presented:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Revenue
Subscription.............................................. 63.2% 78.3% 41.1%
Other..................................................... 36.8 21.7 58.9
----- ----- -----
Total revenue.......................................... 100.0 100.0 100.0
----- ----- -----
Costs and expenses
Cost of subscription revenue.............................. 31.4 69.3 14.0
Cost of other revenue..................................... 29.2 8.2 42.0
Product development....................................... 29.3 38.7 14.8
Sales and marketing....................................... 20.6 22.2 27.1
General and administrative................................ 25.3 39.2 20.9
Depreciation and amortization............................. 2.1 6.3 5.9
Stock-based compensation.................................. -- -- 4.6
----- ----- -----
Total costs and expenses............................... 137.9 183.9 129.3
----- ----- -----
Loss from operations........................................ (37.9) (83.9) (29.3)
Interest income (expense), net.............................. (0.1) 0.8 0.0
----- ----- -----
Net loss.................................................... (38.0)% (83.1)% (29.3)%
===== ===== =====
</TABLE>
COMPARISON OF YEAR ENDED DECEMBER 31, 1998 WITH YEAR ENDED DECEMBER 31, 1997
Revenue. Total revenue increased from $3.8 million in 1997 to $17.4 million
in 1998. The increase in revenue was due in part to the significant increase in
subscription revenue from $3.0 million in 1997 to $7.2 million in 1998, mostly
due to memberships purchased by AT&T. The increase in other revenue was
attributable primarily to both: (1) the addition of Student Advantage's
marketing services business, which was acquired from Collegiate Advantage on
January 1, 1998, and (2) an increase in commerce revenue due primarily to fees
for obtaining calling card applications for AT&T, which began in the third
quarter of 1998. The increase in other revenue was attributable to a lesser
extent to increased advertising revenues related to the Student Advantage
magazine and the Student Advantage Web site. The first two issues of the Student
Advantage magazine shipped in the fourth quarter of 1998.
AT&T accounted for approximately 62% and 68% of total revenue for 1997 and
1998. Additionally, AT&T accounted for approximately 77% and 95% of subscription
revenue for 1997 and 1998, and 9% and 49% of other revenue for 1997 and 1998. No
other single customer accounted for 10% or more of total revenues for 1997 or
1998.
Cost of Subscription Revenue. Cost of subscription revenue consists of the
costs associated with the fulfillment of membership subscriptions and customer
service. Cost of subscription revenue decreased from $2.6 million in 1997 to
$2.4 million in 1998, due primarily to increased fulfillment efficiencies.
Cost of Other Revenue. Cost of other revenue consists of the cost of
advertising, marketing services and commerce. Advertising costs include
production and mailing costs for the magazine, as well as costs incurred for the
Student Advantage Web site. Marketing services costs include the direct and
indirect costs associated with planning and implementing events and promotions,
media placement and other marketing services. Commerce costs include
personnel-related costs associated primarily with acquiring calling card
customers. Cost of other revenue increased from $309,000 in 1997 to $7.3 million
in 1998. The increase in cost of other revenue is due primarily to the addition
of Collegiate Advantage and its
22
<PAGE> 25
marketing services business in 1998 and the commencement of activities under the
AT&T marketing agreement, entered into in the third quarter of 1998, under which
Student Advantage visits college campuses to acquire calling card customers for
AT&T. Costs associated with the production of SAM, which shipped for the first
time in the fourth quarter of 1998, also contributed to the increase.
Product Development. Product development expenses consist primarily of
personnel-related costs associated with the development and enhancement of the
membership products, which include the Student Advantage membership card, the
Student Advantage magazine and the studentadvantage.com Web site. Product
development expenses increased from $1.5 million in 1997 to $2.6 million in
1998. The increase is primarily due to Student Advantage's increased investment
in enhancing and improving the functionality of its Web site and other related
costs.
Sales and Marketing. Sales and marketing expenses consist primarily of
personnel and other costs related to our sales and marketing programs. These
expenses increased from $843,000 in 1997 to $4.7 million in 1998. The increase
in sales and marketing expenses was due, in large part, to increased
expenditures related to building brand awareness, expanding and servicing the
customer base of partners, selling more online advertising, and supporting the
marketing services business. In 1998, we incurred additional sales and marketing
expenses as a result of the acquisition of the Collegiate Advantage business.
General and Administrative. General and administrative expenses consist
primarily of costs related to general corporate functions, including executive
management, finance, human resources, facilities, and legal. General and
administrative expenses increased from $1.5 million in 1997 to $3.6 million in
1998. The increase in general and administrative expenses is primarily due to
facilities and personnel-related costs.
Depreciation and Amortization. Depreciation and amortization expenses
increased from $239,000 in 1997 to $1.0 million in 1998. Amortization expense
increased as a result of the amortization over five years of goodwill and other
intangible assets related to the acquisitions of Collegiate Advantage and The
Main Quad. Depreciation expense increased primarily as a result of fixed asset
purchases in 1998.
Stock-Based Compensation. We recorded deferred compensation of $4.2
million in the year ended December 31, 1998. Of this amount, $808,000 is being
recorded as an expense in 1998. The remainder is being amortized over the
remaining vesting period of the individual options.
Interest Income (Expense), Net. Interest income, net includes interest
income from cash balances and interest expense related to Student Advantage's
financing obligations. Interest income, net decreased from $29,000 in 1997 to
$2,000 in 1998. The decrease is a result of interest due on borrowings under our
line of credit which was offset later in the year by interest income earned on
cash balances as a result of the issuance of preferred stock in October 1998, as
well as interest from a promissory note to a stockholder. Additionally, Student
Advantage incurred interest expense related to loans from the Chief Executive
Officer, which were repaid in full in 1998.
Income Taxes. On October 20, 1998, Student Advantage converted from a
limited liability company to a C Corporation. Operating losses originating while
Student Advantage was a limited liability company do not carry over to the C
Corporation, although certain other timing items as a result of differences
resulting from accrual to cash basis adjustments will be available to Student
Advantage. For the period October 21, 1998 to December 31, 1998 Student
Advantage generated a net operating loss carryforward of $2.0 million. Student
Advantage's net operating loss carryforwards expire beginning in 2018. Certain
future changes in the share ownership of Student Advantage, as defined in the
Tax Reform Act of 1996, may restrict the utilization of carryforwards. A
valuation allowance has been recorded for the entire deferred tax asset as a
result of uncertainties regarding the utilization of the asset due to Student
Advantage's lack of earnings history.
23
<PAGE> 26
COMPARISON OF YEAR ENDED DECEMBER 31, 1997 WITH YEAR ENDED DECEMBER 31, 1996
Revenue. Total revenue increased from $1.7 million in 1996 to $3.8 million
in 1997. The increase in revenue was due primarily to an increase in
subscription revenue from $1.1 million in 1996 to $3.0 million in 1997. The
increase in subscriptions was due to the commencement of Student Advantage's
membership agreement with AT&T, under which AT&T purchased membership
subscriptions for distribution to students. Other revenue increased from
$637,000 in 1996 to $821,000 in 1997, due primarily to increased advertising
revenue and, to a lesser extent, an increase in commerce revenue.
AT&T accounted for approximately 62% of total revenues in 1997. No other
single customer accounted for 10% or more of revenues in 1996 or 1997.
Cost of Subscription Revenue. Cost of subscription revenue increased from
$543,000 in 1996 to $2.6 million in 1997. This increase is due primarily to the
increased costs associated with fulfilling new membership subscriptions, as well
as costs related to the addition of personnel to support the growth in revenues.
Cost of Other Revenue. Cost of other revenue decreased from $506,000 in
1996 to $309,000 in 1997, due primarily to lower advertising costs.
Product Development. Product development expenses increased from $507,000
in 1996 to $1.5 million in 1997. The increase is primarily due to the continued
investment in the membership subscription business. During 1997, Student
Advantage continued to develop new products to offer to support the membership
subscription business as well as enhance and grow the base of corporate
partners.
Sales and Marketing. Sales and marketing expenses increased from $356,000
in 1996 to $843,000 in 1997. The increase in sales and marketing is due to
increased expenditures to support the membership subscription business, which
grew significantly in 1997 with the addition of the AT&T membership agreement.
General and Administrative. General and administrative expenses increased
from $437,000 in 1996 to $1.5 million in 1997. The increase in general and
administrative expenses is primarily due to the increase in facilities costs and
an increase in the number of personnel hired during the year to support the
growth in Student Advantage's business.
Depreciation and Amortization. Depreciation and amortization expenses
increased from $37,000 in 1996 to $239,000 in 1997, primarily due to the
amortization of goodwill and other intangible assets resulting from
acquisitions.
Interest Income (Expense), Net. Interest income (expense), net includes
interest income from Student Advantage's cash balances and interest expense
related to Student Advantage's financing obligations. Interest income increased
from $1,000 of net interest expense in 1996 to $29,000 of net interest income in
1997. The increase is primarily due to a higher average cash and cash
equivalents balance during 1997.
24
<PAGE> 27
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth unaudited quarterly statement of operations
data for each of the four quarters in the year ended December 31, 1998. In the
opinion of management, the unaudited financial results include all adjustments,
consisting only of normal recurring adjustments, necessary for the fair
presentation of our results of operations for those periods. The quarterly data
should be read in conjunction with the Financial Statements and the Notes
thereto appearing elsewhere in this prospectus. The results of operations for
any quarter are not necessarily indicative of the results of operations for any
future period.
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1998 1998 1998 1998
-------------- ------------- -------------- -------------
(UNAUDITED, IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenue
Subscription.............................. $1,738 $2,274 $1,856 $ 1,306
Other..................................... 1,658 1,124 3,826 3,661
------ ------ ------ -------
Total revenue..................... 3,396 3,398 5,682 4,967
------ ------ ------ -------
Costs and expenses
Cost of subscription revenue.............. 302 413 951 776
Cost of other revenue..................... 1,515 854 1,572 3,390
Product development....................... 485 812 596 695
Sales and marketing....................... 746 1,069 1,281 1,621
General and administrative................ 508 776 1,067 1,296
Depreciation and amortization............. 160 377 233 257
Stock-based compensation.................. -- -- -- 808
------ ------ ------ -------
Total costs and expenses.......... 3,716 4,301 5,700 8,843
------ ------ ------ -------
Loss from operations........................ (320) (903) (18) (3,876)
------ ------ ------ -------
Interest income (expense), net.............. 15 (25) (33) 45
------ ------ ------ -------
Net loss.................................... $ (305) $ (928) $ (51) $(3,831)
====== ====== ====== =======
</TABLE>
25
<PAGE> 28
The following table sets forth certain unaudited quarterly statement of
operations data expressed as a percentage of total revenues for each of the four
quarters in the period ended December 31, 1998.
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1998 1998 1998 1998
--------- -------- --------- --------
(UNAUDITED, IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenue
Subscription........................... 51.2% 66.9% 32.7% 26.3%
Other.................................. 48.8 33.1 67.3 73.7
----- ----- ----- -----
Total revenue.................. 100.0 100.0 100.0 100.0
----- ----- ----- -----
Costs and expenses
Cost of subscription revenue........... 8.9 12.2 16.7 15.6
Cost of other revenue.................. 44.6 25.1 27.7 68.2
Product development.................... 14.2 23.9 10.5 14.0
Sales and marketing.................... 22.0 31.5 22.5 32.6
General and administrative............. 15.0 22.8 18.8 26.1
Depreciation and amortization.......... 4.7 11.1 4.1 5.2
Stock-based compensation............... -- -- -- 16.3
----- ----- ----- -----
Total costs and expenses....... 109.4 126.6 100.3 178.0
----- ----- ----- -----
Loss from operations..................... (9.4) (26.6) (0.3) (78.0)
----- ----- ----- -----
Interest income (expense), net........... 0.4 (0.7) (0.6) 0.9
----- ----- ----- -----
Net loss................................. (9.0)% (27.3)% (0.9)% (77.1)%
===== ===== ===== =====
</TABLE>
Our operating results are dependent upon the college student market and
vary seasonally based upon the typical school year. We tend to sell most of our
memberships in the beginning of the fall academic term and the beginning of the
spring academic term. In addition, all of our memberships expire on August 31 of
each year. Because we recognize revenue from memberships ratably over the period
from the time of subscription until the end of our membership year, our
subscription revenue is typically higher in the second and third quarters than
in the first and fourth quarters of each fiscal year. In 1998, our revenue from
advertising, marketing services and commerce was higher in the third quarter
than in other quarters in part because of increased activity associated with the
commencement of the school year. We believe that this seasonality may also occur
in subsequent years. The increase in other revenue in the third quarter of 1998
was also due to the commencement of activities under the AT&T marketing
agreement under which we receive fees for obtaining calling card applications
from students. Other revenue and the cost of other revenue were each affected in
the fourth quarter of 1998 by the publication of two issues of SAM.
LIQUIDITY AND CAPITAL RESOURCES
Student Advantage has financed its operations primarily through the private
placement of securities, cash from operations, borrowings under its credit
facilities and loans from LLC members. In October 1998, Student Advantage
completed a private placement of equity securities to new investors and received
$9.9 million in net proceeds. As of March 31, 1999, Student Advantage had
approximately $3.7 million in cash and cash equivalents.
Net cash used for operating activities was $2.7 million for 1998, compared
to $3.0 million provided by operating activities for 1997. The increase in net
cash used resulted primarily from an increase in accounts receivable of $2.7
million in 1998 and increasing net losses for 1998. The increase was partially
offset by the timing of payments of accounts payable and accrued expenses and
increased depreciation and amortization expense. Net cash in 1997 was affected
by an increase in deferred revenue of $5.4 million. Deferred revenues increased
$1.0 million in 1998 over those of 1997. Deferred revenue represents primarily
payments for membership fees not yet recognized as revenue and advance payments
for purchases of memberships and other services.
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<PAGE> 29
Net cash used for investing activities increased from $650,000 in 1997 to
$1.7 million in 1998. This increase was due primarily to the purchase of fixed
assets and the acquisition of Collegiate Advantage in 1998.
Net cash used for financing activities was $453,000 in 1997, compared to
net cash provided by financing activities of $7.5 million in 1998. This increase
was primarily due to net cash proceeds of $9.9 million from the sale of shares
of Student Advantage preferred stock, partially offset by a distribution of $2.3
million to LLC members. In 1997, Student Advantage repurchased a member's LLC
interest for $630,000.
As of April 5, 1999, the Company had a line of credit and equipment lease
credit facility with a commercial bank in an aggregate amount of $2.75 million.
The line of credit bears interest at a rate of LIBOR plus 200 basis points or
the bank's base rate. As of April 5, 1999, $1.0 million was outstanding under
the line of credit.
Student Advantage has experienced a substantial increase in its
expenditures consistent with growth in operations and staffing, and anticipates
that this will continue for the foreseeable future. Additionally, Student
Advantage will continue to evaluate possible investments in businesses, products
and technologies, and plans to expand its Web infrastructure, sales and
marketing programs and aggressively promote its brand. Student Advantage
currently anticipates that its available cash resources combined with the net
proceeds for this offering will be sufficient to meet its anticipated needs for
working capital and capital expenditures for at least 12 months following this
offering.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the Accounting Standards Executive Committee ("AcSEC")
issued Statement of Position 98-1, "Accounting for the Cost of Computer Software
Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 is effective for
financial statements for years beginning after December 15, 1998. SOP 98-1
provides guidance for accounting for costs of software products developed or
purchased for internal use, including when costs should be capitalized. Student
Advantage does not expect the adoption of this standard to have a material
effect on Student Advantage's results of operation, financial position or cash
flows.
In April 1998, AcSEC issued SOP 98-5, "Reporting on the Costs of Start-Up
Activities" ("SOP 98-5"). SOP 98-5, which is effective for fiscal years
beginning after December 15, 1998, provides guidance on the financial reporting
of start-up costs and organization costs. It requires costs of start up
activities and organization costs to be expensed as incurred. As Student
Advantage has expensed these costs historically, the adoption of this standard
is not expected to have a significant impact on Student Advantage's results of
operations, financial position or cash flows.
In June 1998, FASB issued SFAS No. 133, "Accounting for Derivatives and
Hedging Activities" ("SFAS No. 133"), which establishes accounting and reporting
standards for derivative instruments, including derivative instruments embedded
in other contracts, (collectively referred to as derivatives) and for hedging
activities. SFAS No. 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. The adoption of SFAS No. 133 is not expected to
have an impact on Student Advantage's results of operations, financial position
or cash flows.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded
to accept or recognize only two digit entries in the date code field. These
systems and software products will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. As a result, computer
systems and/or software used by many companies and governmental agencies may
need to be upgraded to comply with such Year 2000 requirements or risk system
failure or miscalculations causing disruptions of normal business activities.
27
<PAGE> 30
State of Readiness. Student Advantage does not internally develop a
significant amount of software. Student Advantage has made a preliminary
assessment of the Year 2000 readiness of its operating financial and
administrative systems, including the hardware and software that support Student
Advantage's systems. Student Advantage's assessment plan consists of:
- contacting third-party vendors and licensors of material hardware,
software and services that are both directly and indirectly related to
the delivery of Student Advantage's services to its users,
- contacting vendors of third-party systems,
- assessing repair or replacement requirements,
- implementing repair or replacement, and
- creating contingency plans in the event of Year 2000 failures.
Student Advantage is currently conducting an inventory of and developing
testing procedures for all software and other systems that it believes might be
affected by Year 2000 issues. Since third parties developed and currently
support many of the systems that we use, a significant part of this effort will
be to ensure that these third-party systems are Year 2000 compliant. We plan to
confirm this compliance through a combination of the representation by these
third parties of their products' Year 2000 compliance, as well as specific
testing of these systems. Student Advantage plans to complete this process prior
to the end of the third quarter of 1999. Until such testing is completed and
such vendors and providers are contacted, Student Advantage will not be able to
completely evaluate whether its systems will need to be revised or replaced.
Costs. To date, Student Advantage has spent an immaterial amount on Year
2000 compliance issues but expects to incur an additional approximately $100,000
in connection with identifying, evaluating and addressing Year 2000 compliance
issues. Most of Student Advantage's expenses have related to, and are expected
to continue to relate to, the operating costs associated with time spent by
employees and consultants in the evaluation process and Year 2000 compliance
matters generally. Such expenses, if higher than anticipated, could have a
material adverse effect on Student Advantage's business, results of operations
and financial condition.
Risks. Student Advantage is not currently aware of any Year 2000 compliance
problems relating to its systems that would have a material adverse effect on
Student Advantage's business, results of operations and financial condition,
without taking into account Student Advantage's efforts to avoid or fix such
problems. There can be no assurance that Student Advantage will not discover
Year 2000 compliance problems in its systems that will require substantial
revision. In addition, there can be no assurance that third-party software,
hardware or services incorporated into Student Advantage's material systems will
not need to be revised or replaced, all of which could be time-consuming and
expensive. The failure of Student Advantage to fix or replace its internally
developed proprietary software or third-party software, hardware or services on
a timely basis could result in lost revenues, increased operating costs, the
loss of customers and other business interruptions, any of which could have a
material adverse effect on Student Advantage's business, results of operations
and financial condition.
Student Advantage is heavily dependent on a significant number of
third-party vendors to provide both network services and equipment. A
significant Year 2000-related disruption of the network, services or equipment
that third-party vendors provide to Student Advantage could cause Student
Advantage's members and visitors to consider seeking alternate sites or cause an
unmanageable burden on its customer service, which in turn could materially and
adversely affect Student Advantage's business, financial condition and results
of operations.
In addition, there can be no assurance that governmental agencies, utility
companies, Internet access companies, third-party service providers and others
outside of Student Advantage's control will be Year 2000 compliant. The failure
by such entities to be Year 2000 compliant could result in a systemic failure
beyond the control of Student Advantage, such as a prolonged Internet,
telecommunications or electrical failure, which could also impair Student
Advantage's ability to deliver its services to its customers,
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<PAGE> 31
decrease the use of the Internet or prevent users from accessing its Web sites
which could have a material adverse effect on Student Advantage's business,
results of operations and financial condition.
Contingency Plan. As discussed above, Student Advantage is engaged in an
ongoing Year 2000 assessment and has not yet developed any contingency plans.
The results of Student Advantage's Year 2000 simulation testing and the
responses received from third-party vendors and service providers will be taken
into account in determining the nature and extent of any contingency plans.
29
<PAGE> 32
BUSINESS
OVERVIEW
Student Advantage, Inc. is dedicated to serving the needs of college
students through our leading membership program and studentadvantage.com Web
site. With our national fee-based membership program, we have created a
community of over 1,000,000 student members who receive benefits including
ongoing discounts on products and services offered by over 40 national partners
and 12,000 partners in 115 local markets. Student Advantage offers the only
ongoing discount available to college students for the products and services of
many of our partners. Through studentadvantage.com, we are leveraging our
membership base, brand name, partnerships with corporations and universities,
and existing online business with the objective of becoming the leading online
destination for students. The studentadvantage.com Web site currently offers
content, community and e-commerce targeted to college students.
INDUSTRY BACKGROUND
College students represent a large audience with needs and interests that
are specific to their group. These students are exposed, often for the first
time, to lifestyle decisions and other challenges unique to the college
experience. With so many new experiences to manage, these students seek
information and guidance from a trusted resource able to assist them in matters
such as:
- purchasing and budgeting decisions,
- selecting a major or a career, or finding a job,
- conducting academic research,
- making lifestyle and extracurricular decisions,
- finding economical travel arrangements for breaks or holidays, and
- understanding financial aid alternatives.
To meet the needs of this audience, businesses are offering an increasing
variety of products and services designed to capture their interest. College
students represent an attractive market opportunity for businesses because of
their significant spending power and their tendency to retain brand loyalties
after graduation. According to Student Monitor LLC, a market research company,
college students spent over $100 billion in the 1997-1998 academic year. In the
United States, there are over 15 million full-time and part-time undergraduate
and graduate students at more than 3,000 university and college campuses. The
college student population is expected to grow as there are currently 40 million
children and young adults from ages 10 to 19.
Businesses have recognized the importance of college students and have
dedicated significant advertising and marketing expenditures towards this group.
However, college students have been difficult to reach in a targeted fashion
because:
- they are transient, frequently changing their addresses,
- the college student population has significant turnover,
- colleges are increasingly seeking to limit direct marketing to students
on campus, and
- few national advertising vehicles are directed toward the college student
population.
The Internet has emerged as an attractive medium for advertisers because it
offers a level of targetability, flexibility, interactivity and measureability
not available in traditional media. College students are active users of the
Internet, highly computer literate and active in e-commerce. According to
Student Monitor, 90% of students use the Internet and 52% of these students use
the Internet at least daily. Student Monitor estimates that in 1998, 21% of
students made online purchases representing $890 million
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<PAGE> 33
in e-commerce. According to Jupiter Communications, students will spend close to
$2.6 billion through e-commerce by the year 2002.
Student Advantage believes that businesses are seeking a nationally-focused
vehicle for targeting the attractive college demographic. Many businesses that
have tried to target college students have been unsuccessful, due to the
inherent difficulties in reaching this group. Marketing organizations seeking to
help businesses reach this market have had only limited success because they are
either limited in their geographic scope or are not able to offer a wide range
of services and channels to reach students.
Furthermore, Student Advantage believes that while the Internet creates an
opportunity to reach targeted audiences, it has not been used effectively to
target college students. The major Internet navigational portal sites are
generally designed to appeal to a broad audience. These portals do not focus on
the issues that are relevant to college students, such as financial and
budgeting assistance, economical travel, lifestyle decisions and careers.
Student Advantage believes that there is a need for a comprehensive student
destination focused on the specific requirements of students for information,
guidance and other services.
THE STUDENT ADVANTAGE SOLUTION
Student Advantage is a leading resource and trusted advocate dedicated to
serving the needs of college students. As a result, we are positioned to serve
as a point of access to this market. Through our national membership program, we
have created a community of over 1,000,000 college student members who receive
benefits including ongoing discounts on products and services offered by over 40
national partners and 12,000 local partners. Student Advantage has also created
a comprehensive online destination for college students, studentadvantage.com.
College students can join the Student Advantage membership program:
- by obtaining, free of charge, a co-branded card that serves as both a
Student Advantage membership identification card, paid for by AT&T, and
an AT&T calling card,
- through programs under which universities, colleges and university
organizations purchase memberships in bulk for distribution free of
charge to their students, and
- by paying an annual membership fee of $20.
While our primary constituency is our student members, we also enable
businesses to reach the student market and enable colleges and universities to
provide a highly useful resource to students.
[DIAGRAM SHOWING STUDENT ADVANTAGE IN THE CENTER WITH ARROWS POINTING TO
CAPTIONS FOR STUDENTS, BUSINESSES AND UNIVERSITIES.]
Benefits to Student Members. The Student Advantage membership program
provides college students with ongoing discounts on products and services from
national partners including Amtrak, AT&T, Foot Locker, Greyhound, Staples and
Tower Records. For example, in 1998, our members spent $10.9 million on Amtrak
fares and saved over $1.9 million by using the Student Advantage discount. The
membership program also enables students to receive discounts for products and
services in 115 local markets.
Through our Web site, studentadvantage.com, we provide content, community
and commerce. The Web site offers services and information of particular
interest to college students, including discount purchasing, travel
alternatives, career and job searches, lifestyle and extracurricular decisions
and financial aid. Our Web site:
- enables access to college news from over 400 colleges and universities,
- provides online bulletin boards,
- provides free e-mail and an online address book, calendar and document
storage,
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<PAGE> 34
- offers an e-commerce marketplace, and
- includes a searchable directory of partners who offer discounts for
Student Advantage members.
Student Advantage members also receive a subscription to SAM, a magazine
published by Student Advantage. SAM includes lifestyle and practical content for
students and updates on new discounts available to Student Advantage members.
Benefits to Partners. We provide a platform for our partners to market
their products and services to a large, demographically attractive market.
Student Advantage appeals to partners and advertisers because it combines:
- a large and attractive demographic group,
- database marketing capabilities,
- a trusted brand,
- program usage tracking,
- quality online content, and
- community interaction.
By maintaining contact with students throughout their college experience
and by establishing university partnerships, we also benefit businesses by
allowing targeted and continued access for advertising and marketing efforts. In
addition, businesses that offer products and services through Student Advantage
benefit by being associated with the Student Advantage brand. For example,
according to Egghead.com, in 1998, Student Advantage members who visited
Egghead.com from studentadvantage.com were two times more likely to purchase
products than the average visitor and spent 55% more than the average visitor.
Partners also benefit from our direct marketing knowledge and the expertise
of our management team in designing and implementing effective marketing
techniques to reach college students. AT&T, for example, utilizes Student
Advantage for a variety of marketing programs, primarily to increase the number
of students carrying AT&T calling cards. By partnering with us, AT&T during the
1998-99 school year exceeded its prior year's sales of calling cards to college
students by more than 300%.
We maintain eight regional offices throughout the United States in order to
more effectively reach students and provide services in local markets. These
offices, which are managed by our headquarters in Boston, provide us with a
broad geographical presence and enable us to implement effective nationwide
marketing programs.
Benefits to Colleges and Universities. Colleges and universities can
generate goodwill and help reduce the cost of student life by making the Student
Advantage program readily available to students. Colleges, universities and
university organizations can endorse the membership program, co-market with us
and share in associated revenues. Schools can also purchase memberships in bulk
and offer them to their students free of charge. As colleges seek additional
revenue streams, Student Advantage can use its relationships with local
merchants and its membership card as a platform for colleges and universities to
participate in debit-card transaction revenue from off-campus transactions. We
also fund, and enlist our business partners to sponsor, on-campus student
activities and events. For example, Student Advantage co-sponsored Midnight
Madness at the University of North Carolina -- Charlotte, an event that marks
the beginning of its college basketball season.
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STRATEGY
Our objective is to be the leading online and offline resource for college
students. Student Advantage intends to broaden and deepen its relationship with
students by serving the needs of its three key constituencies - students,
businesses and schools. The key elements of our strategy include the following:
Strengthen Online Destination for Students. Student Advantage believes
that its existing 1,000,000 members provide a platform for building the leading
online destination for students. Our goal is to establish our Web site,
studentadvantage.com, as the primary vehicle for delivery of our products and
services to students. We believe that the Internet is ideally suited for
providing our products and services and is a natural extension of our current
business. Our Web site currently offers content, community and e-commerce
services targeted specifically to college students. The Web site also allows
students to enroll in our membership program, receive customer service, and
search our directory of national and local partners who offer discounts. We
intend to enhance our online offerings by making additional content available
and by expanding our e-commerce marketplace with additional partners. We also
expect to offer additional online programming in order to personalize the Web
site for particular college campuses.
Continue to Build Brand. Student Advantage believes that building its
brand is critical to attracting and expanding its membership and Internet user
base. Our market leadership position has been driven by our membership program
and by partnering with leading national and local partners and universities. We
believe that aggressive brand-building will become increasingly important to
sustain our leadership position. We have started to allocate some of our
branding expenditures toward online branding through partnerships and
distribution agreements with leading Internet-based companies and strategic
alliances with leading advertisers. We will also continue to enhance our offline
branding both directly and through co-marketing arrangements with our partners.
Student Advantage believes that it can build online brand awareness and attract
traffic by leveraging the reach of its student membership base.
Aggressively Grow Membership. We intend to continue to grow our membership
through a variety of initiatives including:
- increasing the rate of new memberships through our Web site,
- increasing our number of corporate partners,
- expanding our partnerships with colleges and universities, including
selling them memberships in bulk,
- expanding our on-campus tabling and marketing services,
- providing members-only premium services on our Web site by introducing
new content and services and transitioning portions of our existing
services and content to members-only status, and
- offering our program to high school students and college graduates.
Enhance Relationships with Students, Businesses and Schools. We intend to
continue to enhance our value to students by offering new products and services,
including online offerings for content, commerce and community. In addition to
increasing the number of national and local partners, Student Advantage will
provide additional services to partners, such as visitor tracking and membership
data which will allow Student Advantage to better target advertising, make
recommendations and provide for a more personalized and engaging experience.
Student Advantage will continue to enroll colleges and universities as partners
and will strengthen its relationships with schools by continuing to provide
marketing services and offering online outsourcing services.
Continue to Pursue Strategic Acquisitions and Alliances. Since inception,
we have acquired and integrated eight complementary businesses in order to
expand and strengthen our offerings to students. We plan to continue to acquire
companies or enter into alliances that offer opportunities to increase our
online traffic and acquire new technologies.
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PRODUCTS AND SERVICES
We provide college students with discounts on a broad range of products and
services through our Student Advantage membership program, as well as valuable
resources through our Web site and other student-focused content and services
offerings. We also offer marketing services to businesses seeking to effectively
communicate with the college student population.
STUDENT ADVANTAGE MEMBERSHIP PROGRAM
Our membership program provides valuable savings opportunities, services
and information to college students. During the 1998-99 academic year, over
1,000,000 students at over 3,000 colleges and universities are members of the
Student Advantage program. Members typically subscribe for one-year memberships
that coincide with the academic year. Memberships are sold in three different
ways. Most are sold to AT&T and distributed in conjunction with an AT&T calling
card. These membership cards are co-branded and serve as both a Student
Advantage membership identification card and AT&T calling card. Memberships are
also sold to colleges, universities and university organizations for
distribution free of charge to students. In addition, Student Advantage sells
memberships directly to students for a membership fee that is currently $20 per
year.
Upon enrollment, Student Advantage members receive a hard plastic Student
Advantage membership identification card and a member guide describing the
program and its benefits. By presenting the Student Advantage card at
participating retail locations, or by providing their membership number online,
Student Advantage members receive attractive discounts throughout the year for
products and services from both national and local partners. Student Advantage
currently offers discounts from our 40 national partners and over 12,000 local
partners in 115 local markets.
National discounts available to Student Advantage members include:
- 15% off Amtrak rail fares
- 15% off purchases from Foot Locker
- 15% off purchases from American Eagle Outfitters
- $50 off any graduate school course at The Princeton Review
- 15% off Greyhound bus fares
STUDENT-FOCUSED CONTENT AND SERVICES
studentadvantage.com
Our Web site, studentadvantage.com, addresses the needs of college students
for content, community and e-commerce.
Content. Student Advantage's content offering includes up-to-date
information on topics of interest to students, including purchasing and
budgeting decisions, travel, career, education, entertainment, health,
lifestyles and financial aid. For example, students may access articles
that provide information on studying abroad or purchasing renters'
insurance. Our content is both developed by our editors and collected
from over 400 colleges using our U-WIRE news feed. In addition, our Web
site provides students with information customized for their local
market or college campus and a searchable online directory of national
and local discounts offered by our partners. Our Web site also includes
maps and directions to retail locations that offer discounts.
Community. The studentadvantage.com Web site offers students a number
of community-building services. Student Advantage's online bulletin
boards give students the opportunity to discuss topics such as
interviewing techniques and campus life. Our Virtual Backpack service
allows students to set up their own email account, organize contact
information in an online
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address book, store documents and keep track of important dates on an
online calendar. We also enable students to send online greeting cards.
e-Commerce. Students can purchase a variety of products online with a
Student Advantage discount. Members can purchase products directly from
vendors through our marketplace or link to a Web page that is co-branded
with a partner. Products offered online include books, software, music,
footwear, magazines and flowers. Companies whose products can be
purchased online through links from our Web site include Egghead.com,
1-800-FLOWERS, University Subscription Service and Rockport Interactive.
U-WIRE (University Wire)
U-WIRE is a daily electronic news service of college news, sports, opinion
and entertainment content collected from over 400 college newspapers. U-WIRE can
be accessed at studentadvantage.com. U-WIRE editors select news, sports, opinion
and entertainment articles from its member newspapers and distribute content
among the college newspapers for inclusion in their print and online editions.
Student Advantage has the exclusive right to syndicate most of the U-WIRE
content electronically and to provide college news feeds to syndication
partners, which currently include Yahoo!, Excite, USAToday.com, Lexis-Nexis and
Digital City, an affiliate of America Online.
SAM, The Student Advantage Magazine
The Student Advantage membership includes a subscription to SAM, the
Student Advantage magazine. SAM is a magazine that is mailed directly to our
members. SAM includes lifestyle and practical content for students, updates on
new discounts and privileges available to Student Advantage members and
interactive features, such as member surveys and contests. Articles are provided
primarily by freelance writers. We use feedback from our readers to tailor
future articles and offerings to their particular interests and needs.
Rail Connection
Through an arrangement with CIT Tours, Corp., a representative of the
Italian State Railways, we offer Eurail passes to student members and others. We
promote our Eurail passes to Student Advantage members in travel guide books,
through direct mail and in advertisements in campus publications.
CORPORATE MARKETING SERVICES
We provide tailored marketing services for businesses seeking to market
their products and services to college students. Our in-depth knowledge of the
college student market, our expertise in marketing to college students and our
extensive university relationships enable us to help businesses effectively and
efficiently reach college students. Student Advantage currently provides a
variety of marketing services to businesses, including the following:
- organizing and executing marketing tours that travel campus to campus,
- staffing tables at on-campus college locations, such as student unions,
to solicit potential student customers,
- developing and managing programs that recruit, train and supervise
students to represent businesses on campus,
- assisting marketers who desire to sponsor on-campus events, such as movie
screenings and concerts, and
- helping marketers place advertisements in college newspapers.
We also provide staffing for on-campus events and other activities for
businesses that have already designed a marketing program but lack
implementation resources and expertise at the campus level.
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Our marketing services are typically offered to businesses on a fixed-cost
basis or hourly rate basis.
Our marketing services group utilizes eight regional offices across the
United States. The broad geographical reach of our marketing services group
allows us to execute our services nationwide. In 1998, clients who purchased our
marketing services included Amtrak, AT&T, Coca-Cola and Visa.
ALLIANCES
An important element of our strategy is to form alliances to assist us in
offering students products and services and in offering businesses and
advertisers an effective channel for reaching college students.
AT&T
Our relationship with AT&T has enabled us to rapidly expand our membership
base and strengthen our presence on college campuses as a resource associated
with quality brand products and services.
In February 1997, Student Advantage and AT&T entered into a membership
agreement under which Student Advantage earns a fee from AT&T for each
membership issued in connection with a Student Advantage AT&T Calling Card, with
a minimum commitment by AT&T for 1.25 million Student Advantage memberships per
academic year. Student Advantage and AT&T agreed to market this program to
college students throughout all of their relevant college marketing channels.
Student Advantage also agreed that it would not enter into any promotional or
marketing activities with any credit card, telecommunications or multipurpose
college student identification card provider, other than AT&T. The agreement
provides that we will not allow any third party to offer a Student Advantage
membership to college students free of charge as an incentive or through any
promotion.
In February 1998, we entered into a marketing agreement with AT&T under
which we agreed to promote and market AT&T's calling card services to college
students. We also agreed to provide certain marketing services focused on the
college market to AT&T. AT&T appointed Student Advantage as the exclusive
provider of tabling and non-tabling activities (which require a physical
presence by its employees on the college campus) with respect to the
solicitation of college students for the AT&T calling card service. In return,
AT&T agreed to pay us for the solicitation of each application for such service.
In addition, AT&T agreed to pay for additional marketing activities and to be
the exclusive sponsor of certain online offerings. We also granted AT&T a right
of first and last refusal to be the exclusive telecommunications advertiser for
the first four issues of the Student Advantage magazine. AT&T agreed to promote
and market the Student Advantage membership through television, mass media
marketing or other mass media advertising. We are also providing other marketing
services to AT&T in the college student market.
In July 1998, AT&T exercised an option to extend the original termination
dates of the membership agreement and the marketing agreement to June 1, 2001.
However, AT&T may terminate these agreements prior to such date upon 120 days
prior notice, subject to payment of a termination fee under certain
circumstances. AT&T may also terminate the agreements if Raymond V. Sozzi, Jr.
is no longer employed as President of Student Advantage, or if he no longer owns
a minimum five percent ownership interest in Student Advantage. AT&T accounted
for 62% of our total revenues in 1997 and 68% of our total revenues in 1998.
While we are not aware of plans by AT&T to terminate its use of our services,
the termination of our relationship with AT&T, or a material reduction in the
use of our services by AT&T, would have a material adverse effect on our
business.
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Partners
Student Advantage offers our members discounts on products and services
from over 40 national partners and 12,000 local partners in over 115 local
markets, including rail fares, bus fares, CDs, books and clothing.
Representative national partners and local markets include:
<TABLE>
<CAPTION>
REPRESENTATIVE NATIONAL PARTNERS REPRESENTATIVE LOCAL MARKETS
<S> <C>
1-800-FLOWERS Ann Arbor, Michigan
American Eagle Outfitters Auburn, Alabama
Amtrak Austin, Texas
Blimpie International Berkeley, California
Choice Hotels Boston, Massachusetts
Dollar Rent a Car Boulder, Colorado
Egghead.com Chapel Hill, North Carolina
Foot Locker Chicago, Illinois
Greyhound Columbus, Ohio
Hostelling International Lawrence, Kansas
IBM Los Angeles, California
Jostens Madison, Wisconsin
Linens 'n Things New York, New York
Pearle Vision Philadelphia, Pennsylvania
Rockport Interactive Princeton, New Jersey
Staples San Diego, California
The Wall Street Journal Tallahassee, Florida
Tower Records Washington, D.C.
</TABLE>
For many of our national partners, the Student Advantage discount is the
only ongoing discount offered to college students. Many of our national partners
engage in co-marketing activities with Student Advantage. Student Advantage
seeks to identify and attract additional partners whose products and services
complement its offerings and who offer valuable ongoing discounts to its
members.
Advertisers
We provide advertisers with access to a large, demographically desirable
college student audience. We also provide advertisers with direct marketing
knowledge and expertise in designing and implementing effective advertising to
reach college students. Businesses which have purchased advertising from us,
such as advertising in SAM, sponsorship of portions of our Web site and banner
advertising, include Apple Computer, Barnes & Noble, Ford Motor Company,
Microsoft and Visa.
Unlike many competitors, we are able to combine print, on-campus and Web
site advertisements. We intend to expand our in-house sales force during 1999
and offer additional banner advertising and sponsorship opportunities on our Web
site.
UNIVERSITY RELATIONSHIPS
We believe that university relationships are critical to our success. An
important element of our strategy is to continue to develop relationships with
colleges, universities and university organizations to assist us in marketing
and selling our products and services. The Student Advantage membership program
has been endorsed by more than 30 colleges, universities and university
organizations. These schools and organizations typically agree to co-market the
Student Advantage membership program to their students and receive a percentage
of the associated membership fees. Several colleges and universities purchase
Student Advantage memberships in bulk and distribute the memberships to their
students free of charge.
Colleges and universities, or university organizations from these schools,
that have endorsed the Student Advantage membership program or purchased
memberships in bulk include:
Arkansas State University
Auburn University
Brandeis University
Emory University
University of California-Berkeley
Florida State University
Northwestern University
University of Pennsylvania
University of Utah
Villanova University
University of Nevada, Las Vegas
University of Virginia
Student Advantage has also established an off-campus debit card program for
New York University and American University. For these universities, we enroll
off-campus local merchants to participate in a debit-card program maintained by
the university.
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SALES AND MARKETING
As of March 31, 1999, Student Advantage had a direct sales organization
consisting of 27 professionals. Five of these professionals are dedicated to the
AT&T relationship with an additional four professionals dedicated primarily to
managing our other significant partner relationships. The remaining 18
professionals are engaged in a variety of sales functions, including:
- selling advertising in SAM,
- selling banner advertising and sponsorships on studentadvantage.com,
- enlisting additional national partners for its discount program,
- seeking opportunities for partner-sponsored events and promotions
targeted at college students, and
- managing existing partner relationships
In addition, we maintain a regional sales organization of 37 professionals
in eight regional offices focused primarily on enlisting and managing local
partners and providing marketing services. These offices, which are managed by
our headquarters in Boston, provide us with a broad geographical presence and
enable us to implement effective nationwide marketing programs.
Student Advantage uses a variety of online and traditional marketing
programs to increase brand awareness. Our marketing goals are to create and
enhance awareness of Student Advantage as the leading resource and trusted
advocate dedicated to serving the needs of college students, the most effective
way for marketers and advertisers to reach students, and a trusted and effective
partner for colleges and universities. Our marketing strategy for each contains
a mix of online advertising, programs which drive members to our Web site,
in-store advertising in local retail locations, on-campus direct solicitation of
students, outbound e-mail, co-marketing with colleges and universities through
on-campus posters and student mailbox drops, print advertising, new media banner
campaigns, and direct mail. Student Advantage's marketing department consisted
of 14 marketing professionals as of March 31, 1999.
TECHNOLOGY
Student Advantage has implemented a broad array of site management,
advertising management, customer interaction, registration systems,
transaction-processing and fulfillment systems using a combination of its own
proprietary technologies and commercially available, licensed technologies. Our
current strategy is to license commercially available technology whenever
possible rather than seek internally developed solutions. We use contractors to
develop the specialized software necessary for our business, such as the
software required to register members online.
Consistent with our preference for off-the-shelf software components, the
hardware systems that we utilize also consist of commercially available
components. Student Advantage believes that this architecture provides the
ability to increase scale quickly and reliably, and at a relatively low cost.
Although our existing infrastructure currently exceeds present demand, we have
plans for additional upgrades in anticipation of increased demand.
Our membership database is hosted at AERO Fulfillment Services and utilizes
Microsoft SQL database. Our production servers utilize Sun Microsystems, Inc.
hardware and use Netscape Web server software. Student Advantage's system
hardware is hosted at USWeb/CKS, a third-party facility in New York. A group of
systems administrators and network managers at USWeb/CKS operate our Web site,
network operations and transaction-processing systems and monitor our systems 24
hours a day.
Our operations are dependent upon USWeb/CKS's and AERO's ability to
maintain their systems in effective working order and to protect their systems
against damage from fire, natural disaster, power loss, telecommunications
failure or similar events. Student Advantage's servers are powered by an
uninterruptible power supply to provide a safeguard against unexpected power
loss. Our systems are copied to backup tapes each night and stored at an
off-site storage facility for one year. In addition, the servers are
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equipped with redundant file systems, which allows for prompt replacement of
defective disks without interruption of service.
COMPETITION
The market for student members and Internet services and products is
relatively new, intensely competitive and rapidly changing. With no substantial
barriers to entry, we believe that competition will continue to intensify. We
compete, directly and indirectly, for members, advertisers, partners and viewers
with the following categories of companies:
- general purpose consumer online services such as America Online and
Microsoft Network, each of which provides access to student-related
content and services,
- Web search and retrieval services, such as AltaVista, Excite, Infoseek,
Lycos, and Yahoo!, and other high-traffic Web sites,
- Web sites targeted to students generally or to students of a particular
school,
- membership programs,
- publishers and distributors of traditional off-line media (such as
television, radio and print), including those targeted to college
students, many of which have established or may establish Web sites, and
- vendors of college student information, merchandise, products and
services distributed through other means, including retail stores, mail
and schools.
We believe that the principal competitive factors in attracting and
retaining members are:
- brand recognition,
- quality of content and service,
- critical mass of members and partners,
- number and type of discounts,
- relationships with universities,
- comprehensive geographic coverage,
- breadth of offerings, and
- cost of service.
We believe that the principal competitive factor in attracting and
retaining partners, merchandisers and content providers is our ability to offer
sufficient incremental revenue from online and offline sales of products and
services. We believe that the principal competitive factors in attracting
advertisers include the demographics of our membership and user base, the number
of readers of our magazine, the number of members and users of our Web site,
cost of advertising and creative implementation of advertisement placements
across our products and services. There can be no assurance that we will be able
to compete favorably with respect to these factors.
We believe that the strong Student Advantage brand combined with our
ability to deliver a targeted, demographically-attractive audience to
advertisers and partners, our existing base of over one million members, our
national and local partners and our relationships with colleges and universities
are principal competitive advantages. However, many of our competitors, current
and potential, have significantly greater financial, technical or marketing
resources. In addition, providers of Internet tools and services may be acquired
by, receive investments from, or enter into other commercial relationships with
larger, well-established and well-financed companies, such as Microsoft or
America Online. Greater competition resulting from such relationships could have
a material adverse effect on our business.
INTELLECTUAL PROPERTY AND PROPERTY RIGHTS
Student Advantage regards its copyrights, service marks, trademarks, trade
dress, trade secrets, proprietary technology and similar intellectual property
as critical to its success, and relies on trademark and copyright law, trade
secret protection and confidentiality and/or license agreements with its
employees,
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customers, independent contractors, partners, and others to protect its
proprietary rights. Student Advantage strategically pursues the registration of
its trademarks and service marks. Effective trademark, service mark, copyright
and trade secret protection may not be available in every country in which
Student Advantage's products and services are made available. There can be no
assurance that the steps taken by us to protect its proprietary rights will be
adequate or that third parties will not infringe or misappropriate our
copyrights, trademarks, trade secrets, trade dress and similar proprietary
rights. In addition, there can be no assurance that other parties will not
independently develop substantially equivalent intellectual property. A failure
by us to protect our intellectual property in a meaningful manner could have a
material adverse effect on our business, financial condition and results of
operations. In addition, litigation may be necessary in the future to enforce
our intellectual property rights, to protect our trade secrets or to determine
the validity and scope of the proprietary rights of others. Such litigation
could result in substantial costs and diversion of financial and managerial
resources, which could have a material adverse effect on our business.
Student Advantage has been subject to claims and expects to be subject to
legal proceedings and claims from time to time in the ordinary course of its
business, including claims of alleged infringement of the trademarks and other
intellectual property rights of third parties. Such claims, even if not
meritorious, could result in the expenditure of significant financial and
managerial resources. Further, if such claims are successful, Student Advantage
may be required to change its trademarks, alter its content and pay financial
damages. There can be no assurance that such changes of trademarks, alteration
of content or payment of financial damages will not adversely affect our
business.
We may be required to obtain licenses from others to refine, develop,
market and deliver new products and services. There can be no assurance that we
will be able to obtain any such license on commercially reasonable terms or at
all or that rights granted pursuant to any licenses will be valid and
enforceable.
GOVERNMENT REGULATION
Student Advantage is subject to various laws and regulations relating to
its business. Although there are currently few laws or regulations directly
governing access to or commerce on the Internet, due to the increasing
popularity and use of the Internet, a number of laws and regulations may be
adopted regarding user privacy, pricing, acceptable content, taxation and
quality of products and services. In addition, several telecommunications
providers have petitioned the Federal Communications Commission to regulate and
impose fees on Internet service providers and online service providers in a
manner similar to long distance telephone carriers. The adoption of any such
laws or regulations could adversely affect the costs of communicating on the
Internet and adversely affect the growth in use of the Internet, or decrease the
acceptance of the Internet as a communications and commercial medium. Moreover,
it may take years to determine the extent to which existing laws relating to
issues such as property ownership, libel and personal privacy are applicable to
the Internet. Any new laws or regulations relating to the Internet could
decrease demand for our products and services or otherwise have a material
adverse effect on our business.
EMPLOYEES
As of March 31, 1999, Student Advantage had a total of 175 full-time
employees. Student Advantage also hires temporary employees, particularly at the
beginning of each school semester, and contract service providers as necessary.
As we continue to grow and introduce additional products and services, we expect
to hire additional employees, particularly in online product development and
sales and marketing. None of our employees is represented by a labor union or is
the subject of a collective bargaining agreement. We believe that relations with
our employees are generally good. Competition for qualified personnel in our
industry is intense, particularly among sales, online product development and
technical staff. We believe that our future success will depend in part on our
continued ability to attract, hire and retain qualified personnel.
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FACILITIES
Student Advantage is headquartered at 280 Summer Street in Boston,
Massachusetts, where it presently leases an aggregate of approximately 30,000
square feet. Our current leases for this facility expire at various times
through 2005. We also maintain regional offices and lease space in Atlanta,
Georgia; Berkeley, California; Dallas, Texas; Evanston, Illinois; Lawrence,
Kansas; Los Angeles, California; New York, New York and Washington, D.C.
We believe that our current facilities and other facilities that will be
available to us will be adequate to accommodate our needs for the foreseeable
future. There can be no assurance that we will be successful in obtaining
additional space, if required, or if such space is obtained that it will be on
terms acceptable to us.
LEGAL PROCEEDINGS
We are not presently subject to any material legal proceedings. We may from
time to time become a party to various legal proceedings arising in the ordinary
course of our business.
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MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The directors, executive officers and other key employees of Student
Advantage, and their ages as of March 31, 1999 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Raymond V. Sozzi, Jr.*.................... 30 Chairman of the Board, President and Chief Executive
Officer
Andrea K. Abegglen*....................... 32 Vice President, Marketing Communications
Christopher B. Andrews*................... 43 Vice President, Finance and Administration and Chief
Financial Officer
G. Todd Eichler*.......................... 31 Executive Vice President, Member Management
David M. Liniado*......................... 28 Vice President, Campus Development
Daniel G. Siegel*......................... 30 Vice President, Product Development
Michael T. Fuller......................... 37 Vice President, Market Development
Mason Myers............................... 28 Vice President, Business Development
Kevin Watters............................. 27 Vice President, Marketing
William S. Kaiser(1)...................... 43 Director
John Katzman(1)........................... 39 Director
Marc Turtletaub(1)........................ 53 Director
</TABLE>
- ---------------
(1) Member of the Audit Committee and the Compensation Committee.
* Executive Officer.
Raymond V. Sozzi, Jr. founded Student Advantage in 1992 and has served as
Chairman of the Board of Directors, President and Chief Executive Officer of
Student Advantage since its inception. Before founding Student Advantage, Mr.
Sozzi was employed by Bain & Company, a consulting company, as an associate
consultant. Mr. Sozzi received a B.A. from Dartmouth College in 1990.
Andrea K. Abegglen has served as Vice President, Marketing Communications,
of Student Advantage since May 1998. From November 1997 to April 1998, Ms.
Abegglen served as Vice President, Strategic Partnerships, of Student Advantage.
From May 1996 to October 1997, Ms. Abegglen served as Chief Operating Officer of
Student Advantage. From June 1991 to June 1993, Ms. Abegglen served as Vice
President of Crimson & Brown Associates, a recruiting firm for minority students
and professionals, and as its President from June 1993 to April 1996. Ms.
Abegglen received a B.A. from the University of Pennsylvania in 1989.
Christopher B. Andrews has served as Vice President and Chief Financial
Officer of Student Advantage since September 1998 and as Vice President, Finance
and Administration, of Student Advantage since January 1999. From January 1992
to August 1998, Mr. Andrews served as Vice President, Finance and
Administration, and from July 1996 to December 1996 also served as interim
President and Chief Executive Officer of Advanced Visual Systems Inc., a
visualization software company. Mr. Andrews received a J.D. from Boston College
Law School in 1981 and a B.A. from Harvard College in 1977.
G. Todd Eichler has served as Executive Vice President, Member Management,
of Student Advantage since January 1997 and served as Vice President, Marketing,
of Student Advantage from January 1995 to December 1996. From January 1991 to
December 1994, Mr. Eichler was employed by Bronner, Slosberg, Humphrey, a direct
marketing and advertising agency, as an account supervisor. From 1989 to 1991
Mr. Eichler was employed by Bain & Company as an associate consultant. Mr.
Eichler received a B.A. from Duke University in 1989.
David M. Liniado has served as Vice President, Campus Development, of
Student Advantage since January 1996. From September 1994 to December 1995, Mr.
Liniado was Director of the Southern
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<PAGE> 45
Region of Student Advantage. In May 1992 Mr. Liniado founded College Discount
Association, a student membership company, and served as its President from May
1992 to August 1994. Mr. Liniado received a B.A. from Emory University in 1993.
Daniel G. Siegel has served as Vice President, Product Development, of
Student Advantage since May 1997, and served as Director of Marketing of Student
Advantage from November 1992 to July 1995. From May 1996 to August 1996, Mr.
Siegel was employed by Microsoft Corporation, a software company, to conduct a
worldwide original equipment manufacturer market study. Mr. Siegel received his
M.B.A. from the Wharton School of Business at the University of Pennsylvania in
1997. Mr. Siegel received a B.A. from the University of Michigan in 1990.
Michael T. Fuller has served as Vice President, Market Development, of
Student Advantage since January 1999. From July 1995 to March 1999, Mr. Fuller
was President of both The Campus Agency, LLC, an advertising and custom
publishing company, and The Travel Holding Group, LLC, a travel marketing
company. From 1991 to June 1995, Mr. Fuller was Director, Sales and Marketing,
of Travel CUTS, a student travel company.
Mason Myers has served as Vice President, Business Development, of Student
Advantage since January 1999 and served as Senior Director, New Media from
December 1997 to December 1998. Mr. Myers co-founded The Main Quad, Inc., a
student-focused Internet site, in May 1995, and served as its Co-President from
May 1995 to December 1997. From August 1994 to May 1995, Mr. Myers was employed
as a project manager by Smart Valley, Inc., a non-profit organization using the
Internet to improve the community of Silicon Valley. From January 1994 to July
1994, Mr. Myers was employed by MFS Communications, Inc., a telecommunications
company in various public relations roles. Mr. Myers received a B.A. from Duke
University in 1993.
Kevin Watters has served as Vice President, Marketing, of Student Advantage
since April 1999 and served as Senior Director, New Media, of Student Advantage
from December 1997 to March 1999. Mr. Watters co-founded The Main Quad, Inc., a
student-focused Internet site, in May 1995, and served as its Co-President from
May 1995 to December 1997. From September 1993 to April 1995, Mr. Watters was
employed by The Procter & Gamble Company, a consumer products company, in its
sales management program. Mr. Watters received a B.A. from Duke University in
1993.
William S. Kaiser has served as a Director of Student Advantage since
October 1998. Since 1986, Mr. Kaiser has been an employee of Greylock Management
Corporation, a venture capital company, and he is a general partner of several
venture capital funds affiliated with Greylock. Mr. Kaiser currently serves as a
Director of Clarus Corporation and Open Market, Inc.
John Katzman has served as a Director of Student Advantage since March
1996. Mr. Katzman founded Princeton Review Publishing, a provider of test
preparation and admission services, and has served as its President since 1981.
Marc Turtletaub has served as a Director of Student Advantage since October
1998. Mr. Turtletaub has served as Chief Executive Officer of The Money Store,
Inc., a financial services company, since 1979.
BOARD COMPOSITION
Following this offering, the Board of Directors of Student Advantage will
be divided into three staggered classes, each of whose members will serve for a
three-year term. The Board will consist of one Class I Director (Mr. Katzman),
one Class II Director (Mr. Sozzi) and two Class III Directors (Messrs. Kaiser
and Turtletaub). At each annual meeting of stockholders, a class of directors
will be elected for a three-year term to succeed the directors of the same class
whose terms are then expiring. The terms of the Class I Director, Class II
Director and Class III Directors will expire upon the election and qualification
of successor directors at the annual meeting of stockholders to be held during
calendar years 2000, 2001 and 2002.
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<PAGE> 46
Each executive officer serves at the discretion of the Board of Directors
and holds office until his or her successor is elected and qualified or until
his or her earlier resignation or removal. There are no family relationships
among any of the directors or executive officers of Student Advantage. All of
the Directors were originally elected to the Board of Directors pursuant to
agreements that will terminate upon the consummation of this offering.
BOARD COMMITTEES
The Board of Directors has a Compensation Committee composed of Messrs.
Kaiser, Katzman and Turtletaub, which makes recommendations concerning salaries
and incentive compensation for employees of Student Advantage and administers
and grants stock options under Student Advantage's stock option plans. The Board
also has an Audit Committee composed of Messrs. Kaiser, Katzman and Turtletaub,
which reviews the results and scope of the audit and other services provided by
Student Advantage's independent public auditors.
DIRECTOR COMPENSATION
We do not currently compensate directors for attending meetings of the
Board of Directors or committee meetings of the Board of Directors. Directors
are reimbursed for reasonable expenses incurred in attending board meetings.
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation
during the year ended December 31, 1998 of Student Advantage's Chief Executive
Officer and all other executive officers whose salary and bonus for such fiscal
year equaled or exceeded $100,000, collectively referred to as the Named
Executive Officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
----------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITIONS SALARY($) BONUS($)(1) OPTIONS(#) COMPENSATION($)
---------------------------- --------- ----------- ------------ ---------------
<S> <C> <C> <C> <C>
Raymond V. Sozzi, Jr.......................... $93,798 $150,000 -- $6,000(2)
Chairman of the Board,
President and Chief Executive Officer
G. Todd Eichler............................... 106,475 50,000 -- --
Executive Vice President,
Member Management
David M. Liniado.............................. 85,340 15,000 90,000 6,882(2)
Vice President, Campus
Development
</TABLE>
- ---------------
(1) Represents the bonus earned by each of the Named Executive Officers for
services performed in fiscal 1998 based upon Student Advantage's operating
performance during 1998. Such amounts have not yet been paid.
(2) Includes an automobile allowance of $6,000.
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<PAGE> 47
OPTION GRANTS DURING FISCAL 1998
The following table sets forth information as to options granted to the
Named Executive Officers during the year ended December 31, 1998. No stock
appreciation rights were granted during such fiscal year.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
--------------------------------------------------- VALUE AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATES OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM (2)
OPTIONS EMPLOYEES IN PRICE EXPIRATION ----------------------
NAME GRANTED(1) FISCAL YEAR PER SHARE DATE 5% 10%
---- ---------- ------------- --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Raymond V. Sozzi, Jr....... -- -- -- -- -- --
G. Todd Eichler............ -- -- -- -- -- --
David M. Liniado........... 90,000 3.9% $0.33 12/10/08 $264,370 $420,964
</TABLE>
- ---------------
(1) This option to purchase shares of common stock was granted under the 1998
Stock Incentive Plan and vests as to 25% of the underlying common stock on
January 1, 2000 and as to an additional 25% per year thereafter.
(2) Amounts that may be realized upon exercise of the options immediately before
the expiration of their term, assuming the specified compound rates of
appreciation (5% and 10%) on the market value of the common stock on the
date of option grant over the term of the options. Market value is based on
the value used in calculating stock-based compensation expense included in
our financial statements. These numbers are calculated based on rules
promulgated by the Securities and Exchange Commission and do not reflect
Student Advantage's estimate of future stock price growth. Actual gains, if
any, on stock option exercises and common stock holdings are dependent on
the timing of exercise and the future performance of the common stock. There
can be no assurance that the rates of appreciation assumed in this table can
be achieved or that the amounts reflected will be received by the
individuals. Assuming the fair market value of the common stock at the date
of grant was the assumed initial public offering price of $ per share,
the potential realizable value of the option held by Mr. Liniado at a 5%
assumed annual rate of stock price appreciation would be $ and at a 10%
assumed annual rate of stock price appreciation would be $ .
FISCAL YEAR-END OPTION VALUES
The following table sets forth information with respect to unexercised
options held as of December 31, 1998 by each of the Named Executive Officers. No
options were exercised during 1998 by any of the Named Executive Officers.
<TABLE>
<CAPTION>
NUMBER OF SHARES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT FISCAL YEAR-END AT FISCAL YEAR-END (1)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Raymond V. Sozzi, Jr..................... -- -- -- --
G. Todd Eichler.......................... -- -- -- --
David M. Liniado......................... -- 90,000 -- $162,300
</TABLE>
- ---------------
(1) Calculated by determining the difference between the exercise price ($0.33)
and the deemed fair market value of the securities underlying the options at
December 31, 1998. Fair market value is based on the value used in
calculating stock-based compensation expense included in our financial
statements.
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<PAGE> 48
STOCK PLANS
1998 Stock Incentive Plan
Student Advantage's 1998 Stock Incentive Plan and a related plan for
California employees, collectively referred to as the Incentive Plan, were
adopted by the Board of Directors and approved by the stockholders of Student
Advantage on December 10, 1998. As of April 5, 1999, 120,000 shares of common
stock had been issued upon exercise of options granted under the Incentive Plan.
As of that date, options to purchase 2,222,550 shares of common stock at a
weighted average exercise price of $0.35 per share were outstanding.
The Incentive Plan provides for the grant of incentive stock options
intended to qualify under Section 422 of the Internal Revenue Code of 1986, as
amended, non-statutory stock options, restricted stock awards and other
stock-based awards, collectively referred to as Awards. As of April 5, 1999, a
total of 5,277,450 shares of common stock were reserved for future grants under
the Incentive Plan.
All officers, employees, directors, consultants and advisors of Student
Advantage and its subsidiaries are eligible to receive Awards under the
Incentive Plan. Under present law, however, incentive stock options may only be
granted to employees.
Student Advantage may grant options at an exercise price less than, equal
to or greater than the fair market value of the common stock on the date of
grant. Under present law, incentive stock options and options intended to
qualify as performance-based compensation under Section 162(m) of the Internal
Revenue Code may not be granted at an exercise price less than the fair market
value of the common stock on the date of grant (or less than 110% of the fair
market value in the case of incentive stock options granted to optionees holding
more than 10% of the voting power of Student Advantage). The Incentive Plan
permits the Board of Directors to determine how optionees may pay the exercise
price of their options, including by cash, check or in connection with a
"cashless exercise" through a broker, by surrender to Student Advantage of
shares of common stock, by delivery to Student Advantage of a promissory note,
or by any combination of the permitted forms of payment.
The Board of Directors has the authority to adopt, amend and repeal the
administrative rules, guidelines and practices relating to the Incentive Plan.
It may delegate authority under the Incentive Plan to one or more committees of
the Board of Directors and, subject to certain limitations, to one or more
executive officers of Student Advantage. The Board of Directors has authorized
the Compensation Committee to administer the Incentive Plan, including the
granting of options to executive officers. Subject to any applicable limitations
contained in the Incentive Plan, the Board of Directors, the Compensation
Committee or any other committee or executive officer to whom the Board of
Directors delegates authority, as the case may be, selects the recipients of
awards and determines:
- the number of shares of common stock covered by options and the dates
upon which such options become exercisable,
- the exercise price of options,
- the duration of options, and
- the number of shares of common stock subject to any restricted stock or
other stock-based awards and the terms and conditions of such awards,
including the conditions for repurchase, issue price and repurchase
price.
In the event of a merger or other acquisition event, the Board of Directors
is authorized to provide for outstanding options or other stock-based Awards to
be assumed or substituted for by the acquiror and if not so assumed the Board
shall provide for the acceleration of the vesting of awards. The option
agreements evidencing grants under the Incentive Plan generally provide for the
acceleration of the vesting of options with respect to 50% of the unvested
shares in the event of a change in control of Student Advantage.
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<PAGE> 49
No award may be granted under the Incentive Plan after December 2008, but
the vesting and effectiveness of awards previously granted may extend beyond
that date. The Board of Directors may amend, suspend or terminate the Incentive
Plan or any portion thereof at any time.
1999 Employee Stock Purchase Plan
The Board of Directors adopted Student Advantage's 1999 Employee Stock
Purchase Plan in April 1999, subject to stockholder approval. The Purchase Plan
authorizes the issuance of up to a total of 450,000 shares of common stock to
participating employees.
All employees of Student Advantage, including directors of Student
Advantage who are employees, and all employees of any participating
subsidiaries:
- whose customary employment is more than 20 hours per week for more than
five months in any calendar year,
- who have been employed by Student Advantage for at least three months
prior to enrolling, and
- who are employed on the first day of a designated payroll deduction
period (the "offering period")
are eligible to participate in the Purchase Plan. Employees who would
immediately after the grant own five percent or more of the total combined
voting power or value of the stock of Student Advantage or any subsidiary are
not eligible to participate.
On the first day of an offering period, Student Advantage will grant to
each eligible employee who has elected to participate in the Purchase Plan an
option to purchase shares of common stock as follows: the employee may authorize
an amount (up to 10%, or such lesser amount as shall be determined by the Board,
of such employee's base pay) to be deducted by Student Advantage from such
employee's base pay during the offering period. On the last day of the offering
period, the employee is deemed to have exercised the option, at the option
exercise price, to the extent of accumulated payroll deductions. Under the terms
of the Purchase Plan, the option price is an amount equal to 85% of the closing
price per share of the common stock on either the first day or the last day of
the offering period, whichever is lower. In no event may an employee purchase in
any one offering period a number of shares which exceeds the number of shares
determined by dividing the product of (1) $2,083 and (2) the number of months in
the offering period by the closing market price of a share of common stock on
the commencement date of the offering period or such other number as may be
determined by the Board prior to the commencement date of the offering period.
The Compensation Committee may, in its discretion, choose an offering period of
12 months or less for each offering and may choose a different offering period
for each offering.
An employee who is not a participant on the last day of the offering
period, as a result of voluntary withdrawal or termination of employment or for
any other reason, is not entitled to exercise any option, and the employee's
accumulated payroll deductions will be refunded. However, upon termination of
employment because of death, the employee's beneficiary has certain rights to
elect to exercise the option to purchase the shares that the accumulated payroll
deductions in the participant's account would purchase at the date of death.
Because participation in the Purchase Plan is voluntary, Student Advantage
cannot now determine the number of shares of common stock to be purchased by any
particular current executive officer, by all current executive officers as a
group or by non-executive employees as a group.
401(k) PLAN
Student Advantage has a 401(k) plan, which is intended to qualify under
Sections 401(a) and 401(k) of the Internal Revenue Code. Generally, all
employees are eligible to participate in the 401(k) plan after they have
complete one year of service.
Eligible employees electing to participate in the 401(k) plan may defer a
portion of their compensation, on a pre-tax basis, by making a contribution to
the 401(k) plan. The maximum
47
<PAGE> 50
contribution is fixed in Section 401(k) of the Internal Revenue Code. The
contribution limit for 1998 was $10,000. In April of 1998, Student Advantage
began matching employee contributions to the 401(k) plan. Student Advantage made
matching contributions of $0.50 for each $1.00 contributed by the employee to
the plan, up to 6% of the employee's gross earnings in 1998, subject to the
foregoing limit. Eligible employees who elect to participate in the 401(k) plan
are generally vested in Student Advantage's matching contribution after four
years of service. Student Advantage contributed an aggregate of $61,000 in 1998
to the 401(k) plan.
EMPLOYMENT AGREEMENTS
In March 1996, Student Advantage entered into an employment agreement with
Mr. Sozzi, which was amended in October 1998. The employment agreement provides
for an initial term of employment expiring on January 1, 1999 and automatically
renews for successive one-year terms, unless terminated by either party prior to
such renewal. The employment agreement provides for a base salary of $150,000 in
1999, and a bonus at a target level of $75,000 to be determined in discretion of
the Board of Directors. Pursuant to the employment agreement, if we terminate
Mr. Sozzi's employment without cause, Mr. Sozzi is entitled to receive severance
benefits, for a period of 18 months following his termination, equal to (1) his
base salary; (2) bonus payments at the fixed rate of $75,000 per year for each
year or portion thereof; (3) continued participation in all employee benefits;
and (4) outplacement services. In addition, Mr. Sozzi has agreed to certain
confidentiality, noncompetition and nonsolicitation provisions. Student
Advantage has purchased and presently maintains a key person life insurance
policy in the amount of $20.0 million on the life of Mr. Sozzi.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The compensation committee of the Board of Directors consists of Messrs.
Kaiser, Katzman and Turtletaub, neither of whom has been an officer or employee
of Student Advantage at any time since our inception. No executive officer of
Student Advantage serves as a member of the board of directors or compensation
committee (or other committee serving an equivalent function) of any other
entity that has one or more executive officers serving as a member of our Board
of Directors or compensation committee. Prior to the formation of the
compensation committee, the Board of Directors made decisions relating to the
compensation of executive officers.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
Our amended and restated certificate of incorporation limits the liability
of directors to the maximum extent permitted by Delaware law. Delaware law
provides that a corporation's certificate of incorporation may contain a
provision eliminating or limiting the personal liability of a director for
monetary damages for breach of their fiduciary duties as directors, except for
liability (1) for any breach of their duty of loyalty to the corporation or its
stockholders, (2) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (3) for unlawful payments
of dividends or unlawful stock repurchases or redemptions as provided in Section
174 of the Delaware General Corporation Law or (4) for any transaction from
which the director derived an improper personal benefit.
Our amended and restated certificate of incorporation provides that we
shall indemnify our directors, officers and employee benefit plan fiduciaries to
the fullest extent permitted by law. Our amended and restated certificate of
incorporation permits us to advance expenses incurred by an indemnified director
or officer in connection with the defense of any action or proceeding arising
out of such director's or officer's status or service as a director or officer
of Student Advantage upon an undertaking by such director or officer to repay
such advances if it is ultimately determined that such director or officer is
not entitled to such indemnification.
We have entered into agreements to indemnify our directors and officers, in
addition to the indemnification provided for in our amended and restated
certificate of incorporation. These agreements, among other things, indemnify
our directors and officers for certain expenses (including attorneys' fees and
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<PAGE> 51
associated legal expenses), judgments, fines and amounts paid in settlement
amounts, actually and reasonably incurred by any such person's services as a
director or officer of Student Advantage or any other company or enterprise to
which the person provides services at the request of Student Advantage, if such
officer or director acted in good faith and in a manner which he or she
reasonably believed to be in, or not opposed to the best interests of Student
Advantage or with respect to any criminal proceeding, had no reasonable cause to
believe that his or her conduct was unlawful. We believe that these provisions
and agreements are necessary to attract and retain qualified directors and
officers.
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<PAGE> 52
CERTAIN TRANSACTIONS
EQUITY FINANCING
On October 20, 1998, Greylock IX Limited Partnership and Marc Turtletaub
each purchased an aggregate of 625,000 preferred membership units (which
converted into 625,000 shares of Series A convertible preferred stock) from
certain members of our predecessor LLC, including Messrs. Sozzi, Eichler,
Siegel, Liniado, Ms. Abegglen, and The Main Quad, Inc., for an aggregate
purchase price of $10.0 million. On October 20, 1998, Student Advantage also
sold 625,000 shares of Series A convertible preferred stock to Greylock IX
Limited Partnership and 625,000 shares of Series A convertible preferred stock
to Marc Turtletaub, for an aggregate purchase price of $10.0 million. Mr.
Kaiser, who is a General Partner of the General Partner of Greylock IX Limited
Partnership, and Mr. Turtletaub each became a director of Student Advantage in
October 1998. Upon completion of this offering, these outstanding shares of
preferred stock will automatically be converted into an aggregate of 7,500,000
shares of common stock.
PRINCETON REVIEW PUBLISHING
In March 1996, we entered into an Investment Agreement with Princeton
Review Publishing, L.L.C. Pursuant to this agreement, Princeton Review purchased
2,479 membership units in Student Advantage, LLC, our predecessor LLC, for an
aggregate purchase price of $250,000. Mr. Katzman, a director of Student
Advantage, is the President of Princeton Review Publishing. In connection with
this transaction, the predecessor LLC also:
- issued a convertible promissory note to Princeton Review in the principal
amount of $75,000, bearing interest at 8.5% per year, which was paid in
September 1997, and
- issued a secured promissory note to Princeton Review in the principal
amount of $100,000, bearing interest at 8.5% per year, which was paid in
September 1998.
In September 1997, Student Advantage redeemed 1,498 of Princeton Review's
2,479 membership units in the predecessor LLC for an aggregate purchase price of
$630,000. In addition, Student Advantage borrowed $125,000 from Princeton
Review. This borrowing was repaid on October 23, 1998. In October 1998,
Princeton Review's remaining 981 membership units were converted into 1,854,378
shares of Student Advantage.
In October 1998, Mr. Sozzi entered into an agreement with Princeton Review
requiring Mr. Sozzi to purchase up to 234,375 shares of preferred stock of
Student Advantage at $8.00 per share upon the election of Princeton Review.
Princeton Review exercised this put option on November 24, 1998 and consented to
the purchase of all 234,375 shares of preferred stock by Mr. Siegel and Mr.
Eichler, in addition to Mr. Sozzi.
Student Advantage entered into an agreement in March 1996 with Princeton
Review, pursuant to which:
- Princeton Review provides space on its Web site for Student Advantage to
market its programs,
- Princeton Review agreed to certain non-compete restrictions,
- Student Advantage agreed to promote certain of Princeton Review's
products, and
- Student Advantage agreed not to permit competitors of Princeton Review to
participate in certain Student Advantage programs.
OTHER AGREEMENTS
In February 1995, Student Advantage entered into an agreement with David M.
Liniado d/b/a DML Enterprises. Mr. Liniado is an executive officer of Student
Advantage. Under this agreement, Student Advantage agreed to allow DML to market
discounts on products and services using the Student Advantage name in the
southeastern United States. In February 1996, Student Advantage acquired DML's
business and assets. DML received 111 membership units in the predecessor LLC
and the right to 35% of Student Advantage's pre-tax earnings derived from such
southeastern U.S. markets in 1996, 1997 and 1998. In April 1997, Student
Advantage issued an additional 239 membership units in satisfaction of its
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<PAGE> 53
obligation to pay DML 35% of its earnings derived from that region. The balance
of DML's total membership units as of October 20, 1998 have been converted into
567,630 shares of Student Advantage.
In December 1997, Student Advantage entered into an Asset Purchase
Agreement with The Main Quad, Inc. under which Student Advantage purchased
certain assets, including U-WIRE and Virtual Backpack, for $263,500 and 270
membership units in the predecessor LLC. In connection with this agreement, the
predecessor LLC entered into an ancillary agreement entitling The Main Quad,
Inc. to a certain number of additional membership interests, depending on the
valuation of Student Advantage in its initial public offering. In October 1998,
Student Advantage issued to Main Quad an additional 480 membership units in
satisfaction of this obligation. The balance of The Main Quad Inc.'s total
membership units held as of October 20, 1998 have been converted into 1,275,048
shares of Student Advantage. In connection with the asset purchase agreement,
Student Advantage entered into a three year employment agreement, dated May 1,
1997, with Mr. Myers, co-founder of The Main Quad, Inc. Pursuant to the
agreement, Mr. Myers' base salary was $55,000 for the first year, $60,000 for
the second year and $65,000 for the third year of his employment. Student
Advantage also entered into an employment agreement with Kevin Watters,
co-founder of The Main Quad, Inc., on similar terms.
Mr. Sozzi, the President, Chief Executive Officer and Chairman of the Board
of Directors of Student Advantage, loaned Student Advantage $400,000 on April
21, 1998 at an interest rate of 3%. Student Advantage repaid this loan on August
3, 1998. Mr. Sozzi loaned $300,000 to Student Advantage on August 17, 1998;
$200,000 on August 31, 1998; $100,000 on September 4, 1998 and $250,000 on
September 18, 1998, all at an interest rate of approximately 6% per year.
Student Advantage repaid all of these loans on October 29, 1998.
Student Advantage loaned Mr. Siegel, Vice President, Product Development of
Student Advantage, $60,000 on February 9, 1998 at an interest rate per year of
approximately 6%. This loan was paid in late 1998. Mr. Siegel loaned the company
$100,000 on April 21, 1998 without interest. Student Advantage repaid this loan
on May 11, 1998.
In May 1996, Ms. Abegglen, Vice President, Marketing Communications of
Student Advantage, borrowed $164,914 from Student Advantage in connection with
the purchase of membership units in the predecessor LLC. This borrowing, with
interest at 5% per year, was repaid in December 1998.
In December 1998, Student Advantage granted Christopher B. Andrews, an
executive officer of the company, an option under the 1998 Stock Incentive Plan
to purchase 202,500 shares of common stock at an exercise price of $0.33 per
share. This option vests as to 16 2/3% of the shares on December 10, 1998,
8 1/3% of the shares on September 22, 1999, and 25% on each September 22 for
three years thereafter.
All future transactions, including loans between us and our officers,
directors, principal stockholders and their affiliates will be approved by a
majority of the Board of Directors, including a majority of the disinterested
directors on the Board of Directors, and will be on terms no less favorable to
us than could be obtained from unaffiliated third parties.
DISTRIBUTIONS TO MEMBERS OF PREDECESSOR LIMITED LIABILITY COMPANY
During April 1998, Student Advantage LLC distributed to its LLC members an
aggregate of approximately $1,043,000 so that they could pay their estimated tax
liability with respect to the 1997 taxable income of the LLC. These members
included, among others, Mr. Sozzi, Mr. Eichler, Mr. Siegel, Princeton Review,
Ms. Abegglen, Mr. Liniado and The Main Quad, Inc. In November 1998, Student
Advantage distributed to its members the remainder of the LLC's 1997 taxable
income (approximately $1,277,000). To the extent Princeton Review's tax
liability on the LLC's taxable income for 1997 and 1998 exceeds its estimated
tax liability, Student Advantage agreed to indemnify Princeton Review for such
excess. Student Advantage also has agreed to distribute to its former LLC
members approximately 45% of the LLC's 1998 taxable income (expected to be a
nominal amount) so that they can pay their tax liability with respect to the
1998 taxable income of the LLC for the period between January 1, 1998 and
October 20, 1998, which was the date on which the LLC was converted to a C
Corporation.
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<PAGE> 54
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of the common stock of Student Advantage as of March 31, 1999, and as
adjusted to reflect the sale of the shares of common stock offered by this
prospectus, by:
- each person or entity, or group of affiliated persons or entities, who
Student Advantage knows beneficially owns five percent or more of the
common stock,
- each director and Named Executive Officer of Student Advantage, and
- all directors and executive officers of Student Advantage as a group.
Unless otherwise indicated, (1) each person or entity named in the table
has sole voting power and investment power (or shares such power with his or her
spouse) with respect to all shares of capital stock listed as beneficially owned
by such person or entity and (2) the address of each beneficial owner is c/o
Student Advantage, Inc., 280 Summer Street, Boston, Massachusetts 02210.
<TABLE>
<CAPTION>
PERCENTAGE OF
COMMON
STOCK OUTSTANDING
--------------------
SHARES BENEFICIALLY BEFORE AFTER
NAME OF BENEFICIAL OWNER OWNED(1) OFFERING OFFERING
------------------------ ------------------- -------- --------
<S> <C> <C> <C>
Raymond V. Sozzi, Jr.(2).................................. 7,626,183 31.1%
Greylock IX Limited Partnership(3)........................ 3,750,000 15.3
William S. Kaiser(3)...................................... 3,750,000 15.3
Marc Turtletaub........................................... 3,750,000 15.3
Daniel G. Siegel.......................................... 2,229,912 9.1
G. Todd Eichler........................................... 2,229,912 9.1
Princeton Review Publishing, L.L.C.(4).................... 1,620,003 6.6
John Katzman(4)........................................... 1,620,003 6.6
Mason Myers(5)(6)......................................... 1,335,048 5.4
Kevin Watters(5)(6)....................................... 1,323,048 5.4
The Main Quad, Inc.(5).................................... 1,275,048 5.2
David M. Liniado(6)....................................... 657,630 2.7
All executive officers and directors as a group (9
persons)(7)............................................. 22,871,847 92.7%
</TABLE>
- ---------------
* Less than 1%
(1) The number of shares beneficially owned by each stockholder is determined
under rules promulgated by the Securities and Exchange Commission, and the
information is not necessarily indicative of beneficial ownership for any
other purpose. Under such rules, beneficial ownership includes any shares as
to which the individual or entity has sole or shared voting power or
investment power and any shares as to which the individual or entity has the
right to acquire beneficial ownership within 60 days after March 31, 1999
through the exercise of any stock option or other right. The inclusion
herein of such shares, however, does not constitute an admission that the
named stockholder is a direct or indirect beneficial owner of such shares.
(2) Consists of shares held of record by Mr. Sozzi. Does not include a total of
7,628,814 shares of common stock over which Mr. Sozzi has voting control
pursuant to an irrevocable proxy granted under a Voting Agreement and Proxy
dated October 20, 1998. Counting these shares, Mr. Sozzi may be deemed to
beneficially own a total of 15,254,997 shares, or 62.3% of the outstanding
common stock prior to this offering. The Voting Agreement and Proxy and the
proxy granted thereunder terminate upon the consummation of this offering.
(3) Consists of 3,750,000 shares held of record by Greylock IX Limited
Partnership. Mr. Kaiser is a general partner of Greylock IX GP Limited
Partnership, the general partner of Greylock IX Limited Partnership.
Greylock IX GP Limited Partnership has sole voting and investment power with
respect to these shares. Mr. Kaiser disclaims beneficial ownership of such
shares, except to the extent of his
52
<PAGE> 55
pecuniary interest therein. The address for Greylock IX Limited Partnership
and Greylock IX GP Limited Partnership is One Federal Street, Boston,
Massachusetts 02110.
(4) Consists of 1,620,003 shares held of record by Princeton Review Publishing,
L.L.C. Mr. Katzman is President of Princeton Review Publishing, L.L.C. Mr.
Katzman disclaims beneficial ownership of such shares, except to the extent
of his pecuniary interest therein. The address for Princeton Review
Publishing is 2315 Broadway, New York, New York 10024.
(5) Consists of 1,275,048 shares held of record by The Main Quad, Inc. Messrs.
Myers and Watters are each stockholders, directors and officers of The Main
Quad, Inc. Messrs. Myers and Watters share investment and voting power with
respect to these shares. Messrs. Myers and Watters disclaim beneficial
ownership of such shares, except to the extent of their pecuniary interest
therein.
(6) Includes all shares subject to options held by Messrs. Myers, Watters and
Liniado, which are immediately exercisable in full. Any shares acquired upon
exercise are subject to vesting over a four-year period.
(7) See footnotes 2 through 6 above.
53
<PAGE> 56
DESCRIPTION OF CAPITAL STOCK
After this offering, the authorized capital stock of Student Advantage will
consist of 100,000,000 shares of common stock, $0.01 par value per share, and
5,000,000 shares of preferred stock, $0.01 par value per share. As of April 5,
1999, there were outstanding (1) 16,253,892 shares of common stock held by 12
stockholders of record, (2) 2,747,036 shares of convertible preferred stock
(convertible into 8,241,108 shares of common stock) held by 11 stockholders of
record and (3) options to purchase an aggregate of 2,222,550 shares of common
stock.
The following summary of certain provisions of our securities and various
provisions of our amended and restated certificate of incorporation and our
amended and restated bylaws is not intended to be complete and is qualified by
reference to the provisions of applicable law and to our amended and restated
certificate of incorporation and amended and restated bylaws included as
exhibits to the Registration Statement of which this prospectus is a part. See
"Additional Information."
COMMON STOCK
Holders of common stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. Accordingly, holders of a majority of the shares of common stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of common stock are entitled to receive
proportionately any such dividends declared by the Board of Directors, subject
to any preferential dividend rights of outstanding preferred stock. Upon the
liquidation, dissolution or winding up of Student Advantage, the holders of
common stock are entitled to receive ratably the net assets of Student Advantage
available after the payment of all debts and other liabilities and subject to
the prior rights of any outstanding preferred stock. Holders of common stock
have no preemptive, subscription, redemption or conversion rights. The
outstanding shares of common stock are, and the shares offered by Student
Advantage in this offering will be, when issued and paid for, fully paid and
nonassessable. The rights, preferences and privileges of holders of common stock
are subject to the rights of the holders of shares of any series of preferred
stock which Student Advantage may designate and issue in the future. Certain
holders of common stock have the right to require Student Advantage to register
their shares of common stock under the Securities Act in certain circumstances.
See "Shares Eligible for Future Sale."
PREFERRED STOCK
Under the terms of our amended and restated certificate of incorporation,
the Board of Directors is authorized to issue such shares of preferred stock in
one or more series without stockholder approval. The Board has discretion to
determine the rights, preferences, privileges and restrictions, including voting
rights, dividend rights, conversion rights, redemption privileges and
liquidation preferences of each series of preferred stock.
The purpose of authorizing the Board of Directors to issue preferred stock
and determine its rights and preferences is to eliminate delays associated with
a stockholder vote on specific issuances. The issuance of preferred stock, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could make it more difficult for a third party to
acquire, or could discourage a third party from acquiring, a majority of the
outstanding voting stock of Student Advantage. Student Advantage has no present
plans to issue any shares of preferred stock.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS
Student Advantage is subject to the provisions of Section 203 of the
General Corporation Law of Delaware. In general, the statute prohibits a
publicly held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the date of
the transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. A "business
combination" includes mergers, asset sales and other transactions resulting in a
financial benefit to the interested stockholder. Subject to certain exceptions,
an
54
<PAGE> 57
"interested stockholder" is a person who, together with affiliates and
associates, owns, or within three years did own, 15% or more of the
corporation's voting stock.
The amended and restated bylaws provide for the division of the Board of
Directors into three classes as nearly equal in size as possible with staggered
three-year terms. Under the amended and restated bylaws, any vacancy on the
Board of Directors, including a vacancy resulting from an enlargement of the
Board of Directors, may only be filled by vote of a majority of the directors
then in office. The classification of the Board of Directors and the limitation
on and filling of vacancies could make it more difficult for a third party to
acquire, or discourage a third party from acquiring, control of Student
Advantage.
The amended and restated bylaws also provide that after this offering, any
action required or permitted to be taken by the stockholders of Student
Advantage at an annual meeting or special meeting of stockholders may only be
taken if it is properly brought before such meeting and may not be taken by
written action in lieu of a meeting. The amended and restated bylaws further
provide that special meetings of the stockholders may only be called by the
Chairman of the Board, the President or the Board of Directors. In order for any
matter to be considered "properly brought" before a meeting, a stockholder must
comply with certain requirements regarding advance notice and provide certain
information to Student Advantage. These provisions could have the effect of
delaying until the next stockholders meeting stockholder actions which are
favored by the holders of a majority of the outstanding voting securities of
Student Advantage. These provisions could also discourage a third party from
making a tender offer for the common stock, because even if it acquired a
majority of the outstanding voting securities of Student Advantage, it would be
able to take action as a stockholder (such as electing new directors or
approving a merger) only at a duly called stockholders' meeting and not by
written consent.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is BankBoston, N.A.
55
<PAGE> 58
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common
stock. We cannot predict the effect, if any, that sales of shares of common
stock to the public or the availability of shares for sale to the public will
have on the market price of the common stock prevailing from time to time.
Nevertheless, if a significant number of shares of common stock are sold in the
public market, or if people believe that such sales may occur, the prevailing
market price of our common stock could decline and could impair our future
ability to raise capital through the sale of our equity securities.
Upon completion of this offering, we will have an aggregate of shares
of common stock outstanding, assuming no exercise of the underwriters'
over-allotment option and no exercise of options outstanding at March 31, 1999.
Of the outstanding shares, the shares sold in this offering will be freely
tradeable, without restriction under the Securities Act of 1933, except for any
such shares which may be acquired by an "affiliate" of Student Advantage, which
shares will be subject to the volume limitations of Rule 144 under the
Securities Act. As defined in Rule 144, an "affiliate" of an issuer is a person
who, directly or indirectly, through one or more intermediaries, controls or is
controlled by, or is under common control with, such issuer. Substantially all
of the remaining shares of common stock outstanding will be "restricted
securities" as that phrase is defined in Rule 144 and may not be resold in the
absence of registration under the Securities Act or pursuant to an exemption
from such registration, including the exemption provided by Rule 144 under the
Securities Act.
In connection with this offering, our directors, officers and stockholders,
holding 24,495,000 shares in the aggregate, have agreed that, without the prior
written consent of BancBoston Robertson Stephens Inc. on behalf of the
underwriters, during the period ending 180 days after the date of this
prospectus, they will not directly or indirectly offer to sell, contract to
sell, or otherwise sell, dispose of, loan, pledge, or grant any right with
respect to, any shares of common stock or any securities convertible into or
exchangeable for shares of common stock, whether such shares or any such
securities are then owned by such person or are thereafter acquired directly
from us.
Subject to the foregoing and to the lock-up agreements, under Rule 144 as
currently in effect, beginning 180 days after the date of this prospectus,
holders of restricted securities will be entitled to sell a number of shares of
common stock within any three-month period equal to the greater of 1% of the
then outstanding shares of the common stock (approximately shares following
the offering) or the average weekly reported volume of trading of the common
stock on the Nasdaq National Market during the four calendar weeks preceding
such sale, provided that certain manner of sale and notice requirements and
requirements as to the availability of current public information concerning
Student Advantage are satisfied.
Immediately after the offering, there will be options to purchase
approximately shares of common stock outstanding. Subject to the provisions
of the lock-up agreements described below, holders of these options may rely on
the resale provisions of Rule 701 under the Securities Act, which permits
nonaffiliates to sell shares without having to comply with the current public
information, holding period, volume limitation or notice provisions of Rule 144
and permits affiliates to sell their shares without having to comply with the
holding period provision of Rule 144, in each case beginning 90 days after the
consummation of this offering. In addition, immediately after this offering,
Student Advantage intends to file a registration statement on Form S-8 covering
all options granted under the 1998 Stock Incentive Plan. Shares of common stock
registered under such registration statement will, subject to Rule 144 volume
limitations applicable to affiliates, be available for sale in the open market,
unless such shares are subject to vesting restrictions with Student Advantage or
the lock-up agreements described above. See "Management--Stock Plans--1998 Stock
Incentive Plan."
We have agreed not to sell or otherwise dispose of any shares of common
stock during the 180-day period following the date of the prospectus, except
that we may issue shares in connection with certain acquisitions and issue, and
grant options to purchase, shares of common stock under the 1998 Stock Incentive
Plan and the 1999 Employee Stock Purchase Plan.
56
<PAGE> 59
Following this offering, under specified conditions and subject to
customary exceptions, holders of 16,746,186 shares of common stock will have
demand registration rights with respect to their shares of common stock (subject
to the 180-day lock-up arrangement described above) to require us to register
their shares of common stock under the Securities Act, and they will have rights
to participate in any future registration of securities by us. We are not
required to effect more than two demand registrations on behalf of these
holders.
57
<PAGE> 60
UNDERWRITING
The underwriters named below, acting through their representatives,
BancBoston Robertson Stephens Inc., Prudential Securities Incorporated and Volpe
Brown Whelan & Company, LLC have severally agreed with us and the selling
stockholders subject to the terms and conditions of the underwriting agreement,
to purchase from us and them the number of shares of common stock set forth
opposite their names below. The underwriters are committed to purchase and pay
for all such shares if any are purchased.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------- ---------
<S> <C>
BancBoston Robertson Stephens Inc. .........................
Prudential Securities Incorporated..........................
Volpe Brown Whelan & Company, LLC...........................
-------
Total.............................................
=======
</TABLE>
The underwriters' representatives have advised us that the underwriters
propose to offer the shares of common stock to the public at the initial public
offering price set forth on the cover page of this prospectus and to certain
dealers at such price less a concession not in excess of $ per share, of
which $ per share may be reallowed to other dealers. After the initial
public offering, the public offering price, concession, and reallowance to
dealers may be reduced by the representatives. No such reduction shall change
the amount of proceeds to be received by us as set forth on the cover page of
this prospectus.
The underwriters have informed us that they do not intend to confirm sales
to any accounts over which they exercise discretionary authority.
Over-Allotment Option. We have granted to the underwriters an option,
exercisable during the 30-day period after the date of this prospectus, to
purchase up to additional shares of common stock at the same price per
share as we will be paid for the shares that the underwriters have agreed
to purchase. To the extent that the underwriters exercise such option, each of
the underwriters will have a firm commitment to purchase approximately the same
percentage of such additional shares that the number of shares of common stock
to be purchased by it shown in the above table represents as a percentage of the
shares offered hereby. If purchased, such additional shares will be sold by
the underwriters on the same terms as those on which the shares are being
sold. We will be obligated, pursuant to the option, to sell shares to the extent
the option is exercised. The underwriters may exercise such option only to cover
over-allotments made in connection with the sale of the shares of common stock
offered hereby. If such option is exercised in full, the total public offering
price, underwriting discounts and commissions and proceeds to company will be
$ million, $ million and $ million, respectively.
Directed Share Program. At our request, the underwriters have reserved up
to shares of common stock to be issued by us and offered hereby for sale,
at the initial public offering price, to business associates and certain persons
otherwise related to Student Advantage. The number of shares of common stock
available for sale to the general public will be reduced to the extent such
individuals purchase such reserved shares. Any reserved shares which are not so
purchased will be offered by the underwriters to the general public on the same
basis as the other shares offered hereby.
Indemnity. The Underwriting Agreement contains covenants of indemnity
between the underwriters and us against certain civil liabilities, including
liabilities under the Securities Act and liabilities arising from breaches of
representation and warranties contained in the underwriting agreement.
58
<PAGE> 61
Lock-Up Agreements. Each director, officer and stockholder of Student
Advantage has agreed, during the period ending 180 days after the date of this
prospectus (the "lock-up period"), subject to certain exceptions, not to offer
to sell, contract to sell, or otherwise sell, dispose of, loan, pledge or grant
any rights with respect to any shares of common stock or any options, warrants
to purchase any shares of common stock, or any securities convertible into or
exchangeable for shares of common stock owned as of the date of this prospectus
or thereafter acquired directly by such holders or with respect to which they
have the power of disposition, without the prior written consent of BancBoston
Robertson Stephens Inc. However, BancBoston Robertson Stephens Inc. may, in its
sole discretion and at any time without notice, release all or any portion of
securities subject to the lock-up agreement. There are no existing agreements
between the representatives of the underwriters and any of our stockholders
providing consent to the sale of shares prior to the expiration of the lock-up
period.
Future Sales. In addition, we have agreed that during the lock-up period
we will not, without the prior written consent of BancBoston Robertson Stephens
Inc., subject to certain exceptions, (1) consent to the disposition of any
shares held by stockholders subject to lock-up agreements prior to the
expiration of the lock-up period or (2) issue, sell, contract to sell, or
otherwise dispose of, any shares of common stock, any options to purchase any
shares of common stock or any securities convertible into, exercisable for or
exchangeable for shares of common stock other than (a) our sale of shares in
this offering, (b) the issuance of common stock upon the exercise of outstanding
options and the issuance of options under existing stock option and incentive
plans, provided such common stock and the common stock issuable upon the
exercise of such options cannot be transferred prior to the expiration of the
lock-up period and (c) the issuance of shares in connection with certain
acquisitions that cannot be sold on the public market during the lock-up period.
See "Shares Eligible for Future Sale."
Listing. Application has been made to have the shares of common stock
approved for quotation on the Nasdaq National Market under the symbol "STAD."
No Prior Public Market. Prior to this offering, there has been no public
market for the common stock. Consequently, the initial public offering price for
the common stock offered by this prospectus will be determined through
negotiations among us and the representatives of the underwriters. Among the
factors to be considered in such negotiations are prevailing market conditions,
certain of our financial information, market valuations of other companies that
we and the representatives of the underwriters believe to be comparable to us,
estimates of our business potential, the present state of our development and
other factors deemed relevant.
Stabilization. The underwriters have advised us that, pursuant to
Regulation M under the Securities Act, certain persons participating in the
offering may engage in transactions, including stabilizing bids, syndicate
covering transactions or the imposition of penalty bids, that may have the
effect of stabilizing or maintaining the market price of the common stock at a
level above that which might otherwise prevail in the open market. A
"stabilizing bid" is a bid for or the purchase of common stock on behalf of the
underwriters for the purpose of fixing or maintaining the price of the common
stock. A "syndicate covering transaction" is the bid for or the purchase of the
common stock on behalf of the underwriters to reduce a short position incurred
by the underwriters in connection with this offering. A "penalty bid" is an
arrangement permitting the representatives to reclaim the selling concession
otherwise accruing to an underwriter or syndicate member in connection with this
offering if the common stock originally sold by such underwriter or syndicate
member is purchased by the representatives of the underwriters in a syndicate
covering transaction and has therefore not been effectively placed by such
underwriter or syndicate member. The representatives of the underwriters have
advised us that such transactions may be effected on the Nasdaq National Market
or otherwise and, if commenced, may be discontinued at any time.
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon for Student Advantage by Hale and Dorr LLP, Boston, Massachusetts, and for
the underwriters by Testa, Hurwitz & Thibeault, LLP, Boston, Massachusetts.
59
<PAGE> 62
EXPERTS
The audited financial statements included in this Prospectus have been
audited by
PricewaterhouseCoopers LLP. The companies and periods covered by these audits
are indicated in the individual accountant's reports. Such financial statements
have been so included in reliance of the reports of PricewaterhouseCoopers LLP
given the authority of said firm as experts in auditing and accounting.
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a Registration
Statement on Form S-1. This prospectus, which is a part of the Registration
Statement, does not contain all of the information included in the Registration
Statement. Certain information is omitted and you should refer to the
Registration Statement and its exhibits. With respect to references made in this
prospectus to any contract, agreement or other document of Student Advantage,
such references are not necessarily complete and you should refer to the
exhibits attached to the Registration Statement for copies of the actual
contract, agreement or other document. You may review a copy of the Registration
Statement, including exhibits, at the Commission's public reference room at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 or Seven World
Trade Center, 13th Floor, New York, New York 10048 or Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Please call the Commission
at 1-800-SEC-0330 for further information on the operation of the public
reference rooms.
We will also file annual, quarterly and current reports, proxy statements
and other information with the Commission. You may read and copy any reports,
statements or other information on file at the public reference rooms. You can
also request copies of these documents, for a copying fee, by writing to the
Commission.
Our Commission filings and the Registration Statement can also be reviewed
by accessing the Commission's Internet site at http://www.sec.gov, which
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission.
60
<PAGE> 63
STUDENT ADVANTAGE, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
STUDENT ADVANTAGE, INC.
Report of Independent Accountants........................... F-2
Balance Sheet as of December 31, 1997 and 1998.............. F-3
Statement of Operations for the years ended December 31,
1996, 1997 and 1998....................................... F-4
Statement of Changes in Redeemable Convertible Preferred
Stock and Stockholders' Deficit for the years ended
December 31, 1996, 1997 and 1998.......................... F-5
Statement of Cash Flows for the years ended December 31,
1996, 1997 and 1998....................................... F-6
Notes to Financial Statements............................... F-8
COLLEGIATE ADVANTAGE, INC.
Report of Independent Accountants........................... F-18
Balance Sheet as of December 31, 1997....................... F-19
Statement of Operations for the year ended December 31,
1997...................................................... F-20
Statement of Changes in Stockholders' Equity for the year
ended December 31, 1997................................... F-21
Statement of Cash Flows for the year ended December 31,
1997...................................................... F-22
Notes to Financial Statements............................... F-23
THE MAIN QUAD, INC.
Report of Independent Accountants........................... F-26
Balance Sheet as of December 6, 1997........................ F-27
Statement of Operations for the period from January 1, 1997
through December 6, 1997.................................. F-28
Statement of Changes in Stockholders' Deficit for the period
from January 1, 1997 through December 6, 1997............. F-29
Statement of Cash Flows for the period from January 1, 1997
through December 6, 1997.................................. F-30
Notes to Financial Statements............................... F-31
</TABLE>
F-1
<PAGE> 64
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Student Advantage, Inc.
The common stock split described in Note 1 to the financial statements has
not been consummated at April 7, 1999. When it has been consummated, we will be
in a position to furnish the following report:
"In our opinion, the accompanying balance sheet and the related statements
of operations, of changes in redeemable convertible preferred stock and
stockholders' deficit and of cash flows present fairly, in all material
respects, the financial position of Student Advantage, Inc. at December 31, 1997
and 1998, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1998 in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above."
PricewaterhouseCoopers LLP
Boston, Massachusetts
April 5, 1999
F-2
<PAGE> 65
STUDENT ADVANTAGE, INC.
BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
------------------- DECEMBER 31,
1997 1998 1998
------- -------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 1,904 $ 5,048 $ 5,048
Accounts receivable (net of allowance for doubtful
accounts of $70, at December 31, 1997 and December
31, 1998, respectively)............................. 142 2,867 2,867
Prepaid expenses and other current assets.............. 87 317 317
------- -------- --------
Total current assets........................... 2,133 8,232 8,232
Property and equipment, net.............................. 235 1,085 1,085
Intangible assets, net................................... 377 617 617
------- -------- --------
Total assets................................... $ 2,745 $ 9,934 $ 9,934
======= ======== ========
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable....................................... $ 441 $ 1,659 $ 1,659
Accrued compensation................................... 362 977 977
Other accrued expenses................................. 273 1,177 1,177
Deferred revenue....................................... 5,668 6,666 6,666
Notes payable to stockholder........................... 225 -- --
------- -------- --------
Total current liabilities...................... 6,969 10,479 10,479
------- -------- --------
Series A redeemable convertible preferred stock; $1 par
value; Authorized: 4,000,000 shares; Issued: 1,588,688
and 2,952,568 shares at December 31, 1997 and 1998,
respectively; Outstanding: 1,383,156 and 2,747,036
shares at December 31, 1997 and 1998 actual,
respectively; no shares issued and outstanding at
December 31, 1998 pro forma (unaudited)................ 111 10,196 --
------- -------- --------
Commitments and contingencies (Notes 3 and 11)...........
Stockholders' deficit:
Common stock, $.01 par value; Authorized: 45,000,000
shares; Issued: 17,121,651 and 18,348,957 at
December 31, 1997 and 1998, respectively;
Outstanding: 14,906,586 and 16,133,892 shares at
December 31, 1997 and 1998 actual, respectively;
24,375,000 shares outstanding at December 31, 1998
pro forma (unaudited)............................... 171 183 272
Additional paid-in capital............................. 228 4,692 14,799
Accumulated deficit.................................... (4,104) (11,623) (11,623)
Treasury stock (at cost)............................... (630) (630) (630)
Deferred compensation.................................. -- (3,363) (3,363)
------- -------- --------
Total stockholders' deficit.................... (4,335) (10,741) (545)
------- -------- --------
Total liabilities, redeemable convertible
preferred stock and stockholders' deficit.... $ 2,745 $ 9,934 $ 9,934
======= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 66
STUDENT ADVANTAGE, INC.
STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Revenue
Subscription.............................................. $ 1,093 $ 2,971 $ 7,174
Other..................................................... 637 821 10,269
------- ------- -------
Total revenue..................................... 1,730 3,792 17,443
------- ------- -------
Costs and expenses
Cost of subscription revenue.............................. 543 2,628 2,442
Cost of other revenue..................................... 506 309 7,331
Product development....................................... 507 1,469 2,588
Sales and marketing....................................... 356 843 4,717
General and administrative................................ 437 1,485 3,647
Depreciation and amortization............................. 37 239 1,027
Stock-based compensation.................................. -- -- 808
------- ------- -------
Total costs and expenses.......................... 2,386 6,973 22,560
------- ------- -------
Loss from operations........................................ (656) (3,181) (5,117)
Interest income (expense), net.............................. (1) 29 2
------- ------- -------
Net loss.................................................... $ (657) $(3,152) $(5,115)
======= ======= =======
Basic and diluted net loss per share........................ $ (0.05) $ (0.21) $ (0.32)
======= ======= =======
Shares used in computing basic and diluted net loss per
share..................................................... 14,184 15,295 15,957
======= ======= =======
Unaudited pro forma basic and diluted net loss per share.... $ -- $ -- $ (0.24)
======= ======= =======
Shares used in computing unaudited pro forma basic and
diluted net loss per share................................ -- -- 21,128
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 67
STUDENT ADVANTAGE, INC.
STATEMENT OF CHANGES IN REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS'
DEFICIT
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
REDEEMABLE
CONVERTIBLE
PREFERRED STOCK COMMON STOCK ADDITIONAL
--------------------- ---------------------- PAID-IN ACCUMULATED TREASURY
SHARES AMOUNT SHARES PAR VALUE CAPITAL DEFICIT STOCK
----------- ------- ---------- --------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996................ 1,031,914 $ 41 11,121,162 $111 $ (152) $ (295) $ --
Issuance of preferred and common
stock................................. 340,129 13 3,665,652 37 200 --
Net loss................................ (657) --
----------- ------- ---------- ---- ------ -------- -----
Balance, December 31, 1996.............. 1,372,043 54 14,786,814 148 48 (952) --
Issuance of preferred and common
stock................................. 119,368 19 1,286,453 13 56
Issuance of preferred and common stock
upon cancellation of notes payable.... 27,440 5 295,736 3 16
Issuance of preferred and common stock
in satisfaction of obligation to
stockholder........................... 32,792 9 353,404 3 30
Repurchase of 205,532 shares of
preferred stock and 2,215,065 shares
of common stock....................... (630)
Issuance of preferred and common stock
in connection with the acquisition of
The Main Quad......................... 37,045 24 399,244 4 78
Net loss................................ (3,152)
----------- ------- ---------- ---- ------ -------- -----
Balance, December 31, 1997.............. 1,588,688 111 17,121,651 171 228 (4,104) (630)
Issuance of preferred stock, net of
issuance costs of $84................. 1,250,000 10,000 (84)
Issuance of preferred and common stock
in connection with the acquisition of
The Main Quad......................... 65,858 49 709,768 7 169
Issuance of preferred and common stock
in exchange for note receivable....... 48,022 36 517,538 5 124
Distributions to stockholders........... (2,320)
Deferred compensation relating to grants
of stock options...................... 4,171
Compensation relating to grants of stock
options...............................
Net loss................................ (5,115)
----------- ------- ---------- ---- ------ -------- -----
Balance, December 31, 1998.............. 2,952,568 $10,196 18,348,957 $183 $4,692 $(11,623) $(630)
=========== ======= ========== ==== ====== ======== =====
<CAPTION>
TOTAL
DEFERRED STOCKHOLDERS'
COMPENSATION DEFICIT
------------ -------------
<S> <C> <C>
Balance, January 1, 1996................ $ -- $ (336)
Issuance of preferred and common
stock................................. 237
Net loss................................ -- (657)
-------- --------
Balance, December 31, 1996.............. -- (756)
Issuance of preferred and common
stock................................. 69
Issuance of preferred and common stock
upon cancellation of notes payable.... 19
Issuance of preferred and common stock
in satisfaction of obligation to
stockholder........................... 33
Repurchase of 205,532 shares of
preferred stock and 2,215,065 shares
of common stock....................... (630)
Issuance of preferred and common stock
in connection with the acquisition of
The Main Quad......................... 82
Net loss................................ (3,152)
-------- --------
Balance, December 31, 1997.............. -- (4,335)
Issuance of preferred stock, net of
issuance costs of $84................. (84)
Issuance of preferred and common stock
in connection with the acquisition of
The Main Quad......................... 176
Issuance of preferred and common stock
in exchange for note receivable....... 129
Distributions to stockholders........... (2,320)
Deferred compensation relating to grants
of stock options...................... (4,171) --
Compensation relating to grants of stock
options............................... 808 808
Net loss................................ (5,115)
-------- --------
Balance, December 31, 1998.............. (3,363) $(10,741)
======== ========
</TABLE>
See Note 1 for information on stock split.
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 68
STUDENT ADVANTAGE, INC.
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1996 1997 1998
----- ------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss.................................................. $(657) $(3,152) $(5,115)
Adjustments to reconcile net loss to net cash provided by
(used for) operating activities:
Depreciation and amortization.......................... 37 239 1,027
Reserve for bad debts.................................. -- 70 --
Compensation expense relating to issuance of equity.... -- -- 808
Changes in assets and liabilities
Accounts receivable.................................. (34) (44) (2,725)
Prepaid expenses and other current assets............ 7 (79) (230)
Accounts payable..................................... 266 82 1,218
Accrued compensation................................. -- 273 615
Accrued expenses..................................... 17 199 704
Deferred revenue..................................... 93 5,392 998
----- ------- -------
Net cash provided by (used for) operating
activities........................................ (271) 2,980 (2,700)
===== ======= =======
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of fixed assets................................. (16) (220) (1,037)
Acquisitions of businesses for cash....................... (135) (429) (655)
----- ------- -------
Net cash used for investing activities............... (151) (649) (1,692)
===== ======= =======
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of preferred stock, net................ 250 88 9,916
Repayment of note from stockholder........................ -- -- 165
Proceeds from long-term debt.............................. -- 39 --
Proceeds from short-term debt -- related party............ 190 50 1,410
Repayment of short-term debt -- related party............. -- -- (1,635)
Repurchase of common and preferred stock.................. -- (630) --
Distributions to stockholders............................. -- -- (2,320)
----- ------- -------
Net cash provided by (used for) financing
activities........................................ 440 (453) 7,536
----- ------- -------
Net increase in cash and cash equivalents................... 18 1,878 3,144
----- ------- -------
Cash and cash equivalents, beginning of year................ 8 26 1,904
----- ------- -------
Cash and cash equivalents, end of year...................... $ 26 $ 1,904 $ 5,048
===== ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION AND
NON-CASH INVESTING AND FINANCING ACTIVITIES
Cash paid during the year for interest...................... $ 1 $ 28 $ 87
===== ======= =======
</TABLE>
During 1997, the Company issued 37,045 shares of Preferred Stock and
399,244 shares of Common Stock in connection with the acquisition of a company.
During 1997, the Company issued 27,440 shares of Preferred Stock and
295,736 shares of Common Stock in exchange for the cancellation of a $24,000
note payable.
F-6
<PAGE> 69
STUDENT ADVANTAGE, INC.
STATEMENT OF CASH FLOWS --(CONTINUED)
During 1997, the Company issued 32,792 shares of Preferred Stock and
353,404 shares of Common Stock in satisfaction of an obligation to a
stockholder.
During 1998, the Company issued 65,858 shares of Preferred Stock and
709,768 shares of Common Stock in connection with a contingent payment relating
to a 1997 acquisition of a company.
During 1998, the Company issued 48,022 shares of Preferred Stock and
517,538 shares of Common Stock in exchange for a note receivable of $165,000.
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE> 70
STUDENT ADVANTAGE, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION, NATURE OF BUSINESS AND BASIS OF PRESENTATION
Student Advantage, Inc. (the "Company") provides college students with
discounts on a broad range of products and services nationwide through the
Student Advantage membership program, as well as its Web site and magazine.
Student Advantage also offers marketing services to corporations seeking to
communicate effectively with the college student market.
Student Advantage, Inc. is the surviving entity of a reorganization of
Student Advantage, LLC, a limited liability corporation. In October 1998,
Student Advantage, LLC effected a recapitalization pursuant to which 10,911
outstanding Members' Interests converted into a total of 6,875,000 Members'
Interests, 1,497,036 of which were Preferred Members' Interests and 5,377,964 of
which were Common Members' Interests. Each Member received the proportion of
Preferred and Common Members' Interests that corresponded to such Member's
proportion of the 10,911 Members' Interests that existed immediately prior to
the recapitalization. Immediately following such recapitalization, certain
Members sold an aggregate of 1,250,000 Preferred Members' Interests to two
investors for aggregate consideration of $10 million. Immediately following such
transaction, the Company was reorganized from an "LLC" to a "C" corporation, and
as part of such reorganization, each Member received the number of shares of
common stock and of preferred stock of the Company that was equal to the number
of common and preferred Members' Interests that such Member held immediately
prior to the reorganization. The assets and liabilities of the limited liability
corporation were transferred to Student Advantage at historical cost. The
recapitalization and reorganization have been accounted for retroactively in the
accompanying financial statements.
Student Advantage operates in one segment and is subject to the risks and
uncertainties common to growing companies, including reliance on certain
customers, growth and commercial acceptance of the Internet, dependence on
principal products and services and third-party technology, activities of
competitors, dependence on key personnel such as Ray Sozzi, Student Advantage's
Chief Executive Officer, and limited operating history.
Student Advantage has also experienced substantial net losses since its
inception and, as of December 31, 1998, had an accumulated deficit of $11.6
million. Such losses and accumulated deficit resulted primarily from significant
costs incurred in the development of the Company's products and services and the
preliminary establishment of the Company's infrastructure. For the foreseeable
future, the Company expects to continue to experience growth in its operating
expenses in order to execute its current business plan. As a result, the
Company's business plan indicates that additional financing would be required to
support its planned expenditures. In the event that an initial public offering
is not completed on a timely basis, the Company would likely seek such funding
through a private financing.
On April 5, 1999, the Company declared a 3-for-1 stock split in the form of
a stock dividend, subject to stockholder approval. All periods presented have
been restated to reflect the stock dividend.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
Student Advantage considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. Student
Advantage invests its excess cash in money markets and certificates of deposit,
which are subject to minimal credit and market risk. Student Advantage's cash
equivalents are classified as available-for-sale and are recorded at cost which
approximates fair value.
F-8
<PAGE> 71
STUDENT ADVANTAGE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Revenue Recognition
The Company derives subscription revenue from membership fees related to
enrolling students in the Student Advantage Membership program. Subscription
income is recognized ratably over the remaining term of the membership
agreements. Other revenue includes advertising, marketing services, and
commerce. The Company derives revenue from advertisements placed in SAM, the
Student Advantage magazine, and on its Web site. Revenue from fees related to
advertisements placed in SAM are recognized when the magazine is shipped to
members. Web site advertising revenue is recognized as the related impressions
are displayed, provided that no significant obligations remain and collection of
the related receivable is probable. Marketing services revenue is derived from
providing tailored marketing services to corporations seeking to market their
products and services to college students. Fees from marketing services are
recognized as the related services are rendered, provided that no significant
obligations remain and collection of the related receivable is probable.
Commerce revenue includes primarily transaction-based fees earned from reselling
products and services on behalf of the Company's business partners. This revenue
is recognized upon the completion of the related contractual obligations.
Payments received in advance of revenue being earned are recorded as deferred
revenue.
Fair Value of Financial Instruments
The carrying amounts of Student Advantage's financial instruments, which
include cash equivalents, accrued expenses, notes payable and redeemable
convertible preferred stock, approximate their fair values at December 31, 1997
and 1998.
Concentrations of Credit Risk and Significant Customers
Financial instruments which potentially expose the Company to concentration
of credit risk primarily are comprised of trade accounts receivable. Management
believes its credit policies are prudent and reflect normal industry terms and
business risk. The Company does not anticipate non-performance by the
counterparties and, accordingly, does not require collateral. The Company
maintains reserves for potential credit losses and such losses, in the
aggregate, have not exceeded management's expectations. For the years ended
December 31, 1997 and 1998, one customer accounted for 62% and 68% of total
revenue, respectively. At December 31, 1997, three customers accounted for 62%
of accounts receivable, and at December 31, 1998, one customer accounted for 67%
of accounts receivable.
Product Development
Costs incurred in the product development by Student Advantage are expensed
as incurred.
Property and Equipment
Fixed assets are recorded at cost and depreciated over their estimated
useful lives, generally three to five years, using the straight-line method.
Repair and maintenance costs are expensed as incurred.
Intangible Assets
Intangible assets include the excess of the purchase price over
identifiable net assets acquired in acquisitions. Such assets include goodwill,
customer lists, noncompete agreements, Web sites and other intangible assets,
which are being amortized over the estimated economic lives of such assets
ranging from two to five years. Accumulated amortization was $231,000 and
$871,000 at December 31, 1997 and 1998, respectively.
F-9
<PAGE> 72
STUDENT ADVANTAGE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Accounting for Stock-Based Compensation
Student Advantage accounts for stock-based awards to employees using the
intrinsic value method as prescribed by Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations. Accordingly, no compensation expense is recorded for options
issued to employees in fixed amounts and with fixed exercise prices at least
equal to the fair market value of Student Advantage's common stock at the date
of grant. Student Advantage has adopted the provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation," through disclosure only (Note 8). All
stock-based awards to non-employees are accounted for at their fair value in
accordance with SFAS No. 123.
Income Taxes
Prior to its reorganization as a C Corporation in 1998 (Note 1), Student
Advantage was treated as a Limited Liability Corporation for federal and state
income tax purposes. Accordingly, no provision for corporate income taxes was
recorded during this period and all losses were passed through to Student
Advantage LLC's members. At the time of its reorganization, Student Advantage
adopted the liability method of accounting for income taxes as set forth in SFAS
No. 109, "Accounting for Income Taxes."
Advertising Expense
Student Advantage recognizes advertising expense as incurred. Advertising
expense was approximately $182,000, $158,000 and $371,000 for the years ended
December 31, 1996, 1997 and 1998, respectively.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Unaudited Pro Forma Balance Sheet
Upon the closing of Student Advantage's anticipated initial public
offering, all 2,747,036 of the outstanding shares of Series A preferred stock
(Note 6) will automatically convert into 8,241,108 shares of common stock. This
conversion has been reflected in the unaudited pro forma balance sheet as of
December 31, 1998.
Net Loss Per Share and Unaudited Pro Forma Net Loss Per Share
Net loss per share is computed under SFAS No. 128, "Earnings Per Share".
Basic net loss per share is computed using the weighted average number of
shares. Diluted loss per share does not differ from basic loss per share since
potential common shares from conversion of preferred stock and exercise of stock
options are anti-dilutive for all periods presented. Pro forma basic and diluted
net loss per share have been calculated assuming the conversion of all
outstanding shares of Series A preferred stock into common shares, as if the
shares had converted immediately upon their issuance.
Recently Issued Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 130, "Reporting Comprehensive Income". This statement establishes standards
for the reporting and display of
F-10
<PAGE> 73
STUDENT ADVANTAGE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
comprehensive income and its components. SFAS No. 130 was effective for Student
Advantage's fiscal year ended December 31, 1998. Adoption of SFAS No. 130 is for
presentation purposes only and had no effect on Student Advantage's financial
position or results of operations.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information" which supersedes SFAS No. 14, "Financial
Reporting for Segments of a Business Enterprise". This statement changes the way
public business enterprises report segment information, including financial and
descriptive information about their selected segment information. Under SFAS No.
131, operating segments are defined as revenue-producing components of the
enterprise which are generally used internally for evaluating segment
performance. SFAS No. 131 is effective for Student Advantage's fiscal year
ending December 31, 1998 and will not affect Student Advantage's financial
position or results of operations.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits". SFAS No. 132 standardizes the
disclosure requirements for pensions and other postretirement benefits and is
effective for Student Advantage's fiscal year ended December 31, 1998. SFAS No.
132 relates to disclosure only and will not affect Student Advantage's financial
position or results of operations.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". The new standard establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. SFAS No. 133 is effective for all
fiscal quarters of fiscal years beginning after June 15, 1999 and is effective
for Student Advantage's fiscal year ending December 31, 1999. Student Advantage
does not expect the adoption of SFAS No. 133 to have a material effect on its
financial position or results of operations.
In March 1998, the Accounting Standards Executive Committee ("AcSEC")
issued Statement of Position ("SOP") 98-1, "Accounting for the Cost of Computer
Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 is
effective for financial statements for years beginning after December 15, 1998.
SOP 98-1 provides guidance over accounting for computer software development or
obtained for internal use including the requirement to capitalize specified
costs and amortization of such costs. Student Advantage does not expect the
adoption of this standard to have a material effect on Student Advantage's
financial position or results of operation.
In April 1998, AcSEC issued SOP 98-5, "Reporting on the Costs of Start-Up
Activities". Start-up activities are defined broadly as those one-time
activities related to opening a new facility, introducing a new product or
service, conducting business in a new territory, conducting business with a new
class of customer, commencing some new operation or organizing a new entity.
Under SOP 98-5, the cost of start-up activities should be expensed as incurred.
SOP 98-5 is effective for Student Advantage's fiscal 1999 financial statements
and Student Advantage does not expect its adoption to have a material effect on
its financial position or results of operations.
3. ACQUISITIONS
All acquisitions by Student Advantage, since its inception, have been
accounted for as purchases. Accordingly, the purchase price of each transaction
has been allocated to the assets acquired and liabilities assumed based on the
fair value of such assets and liabilities at the respective acquisition dates.
In March 1996, Student Advantage completed its acquisition of The Passport,
Inc. ("Passport"), a company that operated student discount programs. Student
Advantage paid $100,000 in cash and assumed liabilities of $35,000 in exchange
for the net assets of Passport, which consisted primarily of customer lists,
non-compete agreements and other intangible assets. Accordingly, the operating
results of Passport have
F-11
<PAGE> 74
STUDENT ADVANTAGE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
been included in Student Advantage's financial statements since the date of
acquisition. Student Advantage is amortizing these intangible assets on a
straight-line basis over a three-year period.
In December 1997, Student Advantage completed its acquisition of The Main
Quad, Inc. ("Main Quad"), a company that owned and operated Web sites focused on
students. Student Advantage paid $272,000 in cash and issued 399,244 shares of
common stock and 37,045 shares of preferred stock with an aggregate estimated
fair value of $106,000 in exchange for the net assets of The Main Quad, which
consisted of certain office equipment as well as Web sites, customer lists,
non-compete agreements and other intangible assets. Student Advantage is
amortizing these tangible and intangible assets on a straight-line basis over a
two-year period. The agreement also provided for the payment of additional
consideration by Student Advantage upon the resolution of certain contingencies.
In 1998, the agreement was amended to eliminate the contingency provisions, and
Student Advantage agreed to issue an additional 709,768 shares of common stock
and 65,858 shares of preferred stock with an aggregate fair value of $225,000
which has been recorded as additional cost of the assets acquired. The operating
results of The Main Quad have been included in Student Advantage's financial
statements since the date of acquisition.
In December 1997, Student Advantage completed its acquisition of Loci, Inc.
("Loci"), a company that owned and operated a Web site focused on students.
Student Advantage paid approximately $100,000 in cash in exchange for the net
assets of Loci, which consisted of the Web site, customer lists, non-compete
agreements and other intangible assets. Accordingly, the operating results of
Loci have been included in Student Advantage's financial statements since the
date of acquisition. Student Advantage is amortizing these intangible assets on
a straight-line basis over a three-year period.
Student Advantage entered into an agreement effective January 1, 1998 for
the purchase of Collegiate Advantage, Inc., a provider of marketing and
promotional services to the college community. The cost of the acquisition
consisted of $601,000 in cash (including transaction costs) and the assumption
of liabilities of $275,000. During 1998, the Company paid additional contingent
consideration of $50,000. Student Advantage may be required to pay additional
consideration based on future performance of the former Collegiate Advantage
business. The following unaudited pro forma data summarizes the results of
operations for the year ended December 31, 1997 as if the acquisition of
Collegiate Advantage had been completed on January 1, 1997. The pro forma data
gives effect to actual operating results prior to the acquisition and
adjustments to interest income and amortization of goodwill and other intangible
assets. These pro forma amounts do not purport to be indicative of the results
that would have actually been obtained if the acquisition had occurred on
January 1, 1997 or that may be obtained in the future.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1997
-------------------------
(UNAUDITED, IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C>
Net revenue............................................. $ 8,641
Net loss................................................ (3,560)
Net loss per common share:
Basic and diluted..................................... $ (0.23)
</TABLE>
F-12
<PAGE> 75
STUDENT ADVANTAGE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1997 1998
---- ------
<S> <C> <C>
Furniture and fixtures...................................... $ 17 $ 50
Computer equipment and software............................. 164 673
Equipment................................................... 90 196
Leasehold improvements...................................... -- 389
---- ------
271 1,308
Less: Accumulated depreciation and amortization............. 36 223
---- ------
$235 $1,085
==== ======
</TABLE>
Depreciation and amortization expense with respect to property and
equipment for the years ended December 31, 1996, 1997 and 1998 was $3,000,
$20,000 and $187,000, respectively.
5. BORROWINGS
At December 31, 1997, the Company had two notes payable from a stockholder
in the aggregate amount of $225,000. These notes were fully repaid in 1998.
During 1998, the Company entered into a $1,250,000 line of credit agreement
with a bank expiring in April of 1999. The agreement is subject to certain
financial covenants as defined in the agreement, and the assets of the Company
collateralize the related obligation. Borrowings under the agreement bear
interest at the bank's rate, which at December 31, 1998 was 9.25%. During 1998,
the Company borrowed $1,250,000 under the agreement. There were no borrowing
outstanding at December 31, 1998.
In April 1999, this line of credit agreement was replaced with and
superseded by a new line of credit agreement which provides for borrowings of up
to $2.75 million, including a $250,000 equipment line of credit. The terms of
this line of credit agreement require the maintenance of certain minimum
financial ratios and conditions and includes other covenants similar to those in
the initial agreement. A termination of the Company's agreements with AT&T would
give the bank the right to terminate the credit agreement. All borrowings under
this line of credit agreement bear interest at LIBOR plus 200 basis points or at
the bank's rate, and expires in June 2000.
6. PREFERRED STOCK
The Series A preferred stockholders have the following rights and
privileges:
Voting Rights
Each holder of the Series A preferred stock is entitled to a number of
votes equal to the number of shares of common stock into which each share of
such stock is convertible. With respect to the election of directors, the Series
A preferred stockholders, voting as a single class, may elect two directors.
Conversion
Each share of Series A preferred stock is convertible, at the option of the
holder, into three shares of common stock, subject to certain anti-dilution
adjustments. Each share of the Series A preferred stock will automatically
convert into three shares of common stock upon the closing of an underwritten
public
F-13
<PAGE> 76
STUDENT ADVANTAGE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
offering of Student Advantage's common stock at a price to the public of at
least $4.10 per share resulting in aggregate proceeds to Student Advantage of at
least $15 million.
Dividend Rights
The Series A preferred stockholders are not entitled to receive any
dividends unless declared by Student Advantage's Board of Directors. In the
event that dividends are paid on the common stock, the Series A preferred
stockholders are entitled to receive dividends at the same rate and at the same
time as the common stockholders, with each share of Series A preferred stock
being treated as equal to the number of shares of common stock into which each
share of such stock is convertible.
Liquidation Preferences
In the event of any liquidation, dissolution or winding up of Student
Advantage, the Series A preferred stockholders are entitled to receive, in
preference to the holders of the common stock, an amount equal to the greater of
$8.00 per share, subject to certain anti-dilutive adjustments, or such amount as
would have been payable had such shares been converted to common stock just
prior to liquidation. Any assets remaining following the initial distribution to
the preferred stockholders shall be available for distribution ratably among the
common stockholders only.
Redemption
On October 16, 2003, at the request of at least one-third of the holders of
the Series A preferred stock, Student Advantage shall redeem the then
outstanding shares of Series A preferred stock from each holder that requests
redemption. Upon redemption, each holder of the Series A will be entitled to
receive a cash payment equal to $8.00 per share plus any declared but unpaid
dividends.
Undesignated Preferred Stock
On April 5, 1999 Student Advantage's Board of Directors approved, subject
to stockholder approval, 5,000,000 shares of undesignated preferred stock.
Issuances of the undesignated preferred stock may be made at the discretion of
the Board of Directors (without stockholder approval), in one or more series and
with such designations, rights and preferences as determined by the Board. As a
result, the undesignated preferred stock may have dividend, liquidation,
conversion, redemption, voting or other rights which may be more expansive than
the rights of holders of and the common stock.
7. COMMON STOCK
Authorized Shares
On April 5, 1999, Student Advantage's Board of Directors approved, subject
to stockholder approval, an increase in the authorized shares of common stock,
$0.01 par value, to 100,000,000.
8. STOCK AWARD PLANS
1998 Stock Incentive Plan
Under the 1998 Incentive Stock Plan, the Board of Directors may award
options and restricted stock or other stock-based awards. Incentive stock
options may not be granted at less than the fair market value of Student
Advantage's common stock at the date of grant, for a term not to exceed ten
years and generally vesting over a four-year period. The exercise price under
each non-qualified stock option shall be specified by the Board of Directors.
Awards made under the 1998 Stock Plan may be made at the discretion of the Board
of Directors with terms to be defined therein.
F-14
<PAGE> 77
STUDENT ADVANTAGE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
On April 5, 1999, the Board approved, subject to stockholder approval, an
increase in the 1998 Stock Plan providing for the issuance of up to an aggregate
7,500,000 shares of Student Advantage common stock to eligible employees,
officers, directors, consultants and advisors of Student Advantage.
Prior to 1998, there was no compensation expense recognized for stock
option grants made by Student Advantage under APB Opinion No. 25. For the year
ended December 31, 1998, compensation expense recognized for stock option grants
totaled $808,000. Had compensation cost for Student Advantage's option grants
been determined based on the fair value at the date of grant consistent with the
method prescribed by SFAS No. 123, Student Advantage's net loss and net loss per
share would have increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1998
---------------------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C>
Net loss:
As reported...................................... $(5,115)
Pro forma........................................ (5,139)
Basic and diluted net loss per share...............
As reported...................................... 0.32
Pro forma........................................ 0.32
</TABLE>
Because the determination of the fair value of all options granted after
Student Advantage becomes a public entity will include an expected volatility
factor, because additional option grants are expected to be made subsequent to
December 31, 1998, and because most options vest over several years, the pro
forma effects of applying the fair value method may be material to the results
of operations in future years.
Under SFAS No. 123, the fair value of each employee option grant is
estimated on the date of grant using the Black-Scholes option pricing model to
apply the minimum value method with the following weighted-average assumptions
used for grants made during the year ended December 31, 1998: no dividend yield;
risk free interest rates of 4.54%; no volatility; and an expected option term of
4 years.
Stock option activity during the year ended December 31, 1998 was as
follows:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
----------------------
WEIGHTED-
AVERAGE
NUMBER EXERCISE
OF SHARES PRICE
--------- ---------
<S> <C> <C>
Outstanding -- January 1, 1998
Granted (weighted average fair value of $1.86)....... 2,313,000 $0.33
Exercised............................................ --
Canceled............................................. --
--------- -----
Outstanding -- December 31, 1998....................... 2,313,000 $0.33
========= =====
</TABLE>
As of December 31, 1998, 1,887,000 shares were available for grant under
the 1998 Stock Plan.
The following table summarizes information about stock options outstanding
at December 31, 1998:
<TABLE>
<CAPTION>
VESTED AND EXERCISABLE
WEIGHTED-AVERAGE ----------------------------
REMAINING WEIGHTED-AVERAGE
EXERCISE NUMBER CONTRACTUAL LIFE NUMBER OF EXERCISE
PRICE OUTSTANDING (IN YEARS) SHARES PRICE
- -------- ----------- ---------------- --------- ----------------
<S> <C> <C> <C> <C>
$0.33 2,313,000 9.31 450,535 $0.33
</TABLE>
F-15
<PAGE> 78
STUDENT ADVANTAGE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
1999 Employee Stock Purchase Plan
On April 5, 1999, the Board of Directors authorized, subject to stockholder
approval, the 1999 Employee Stock Purchase Plan (the "Purchase Plan"). The
Purchase Plan provides for the issuance of up to 450,000 shares of Student
Advantage's common stock to eligible employees. Under the Purchase Plan, Student
Advantage is authorized to make one or more offerings during which employees may
purchase shares of common stock through payroll deductions made over the term of
the offering. The per-share purchase price at the end of each offering is equal
to 85% of the closing price of the common stock at the beginning or end of the
offering period (as defined by the Purchase Plan), whichever is lower. Student
Advantage has made no determination as to when the first offering period under
the Purchase Plan will commence.
Deferred Compensation
During 1998, Student Advantage granted stock options to purchase 2,313,000
shares of its common stock with an exercise price of $0.33 per share. Student
Advantage recorded compensation expense and deferred compensation relating to
these options totaling $808,000 and $4.2 million, respectively, representing the
differences between the estimated fair market value of the common stock on the
date of grant and the exercise price. Compensation relating to options which
vested immediately upon grant was expensed in full at the date of grant, while
compensation related to options which vest over time was recorded as a component
of stockholders' deficit and is being amortized over the vesting periods of the
related options.
9. INCOME TAXES
Deferred tax assets are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------
<S> <C>
Deferred tax assets:
Deferred revenue................................... $ 2,400,000
Net operating loss carryforwards................... 800,000
Non current assets................................. 200,000
Accruals........................................... 300,000
Deferred compensation.............................. 300,000
Other.............................................. 100,000
-----------
Total deferred tax assets.................. 4,100,000
Deferred tax asset valuation allowance............... (4,100,000)
-----------
$ --
===========
</TABLE>
The Company has provided a full valuation allowance for the deferred tax
assets since it is more likely than not that these future benefits will not be
realized. If the Company achieves future profitability, a significant portion of
these deferred tax assets could be available to offset future income taxes.
At December 31, 1998, the Company has a net operating loss carryforward for
federal and state purposes of approximately $2 million which expires through
2018.
Under the Internal Revenue Code, certain substantial changes in the
Company's ownership could result in an annual limitation on the amount of net
operating loss and tax credit carryforwards which can be utilized in future
years.
F-16
<PAGE> 79
STUDENT ADVANTAGE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
10. EMPLOYEE SAVINGS PLAN
During 1998, Student Advantage adopted an employee retirement savings plan
under Section 401(k) of the Internal Revenue Code which covers substantially all
employees. Under the terms of the 401(k) Plan, employees may contribute a
percentage of their salary, up to a maximum of 20%. Student Advantage
contributed $61,000 to the 401(k) Plan on behalf of its employees during 1998.
11. COMMITMENTS AND CONTINGENCIES
Student Advantage leases its operating facility and certain office
equipment under noncancelable operating lease agreements. Rent expense under
these leases for the years ended December 31, 1996, 1997 and 1998, totalled
approximately $44,000, $246,000 and $722,000, respectively.
Future minimum lease payments under noncancelable operating leases at
December 31, 1998 are as follows:
<TABLE>
<CAPTION>
OPERATING
LEASES
----------
<S> <C>
1999..................................................... $ 799,000
2000..................................................... 708,000
2001..................................................... 496,000
2002..................................................... 437,000
2003..................................................... 437,000
Thereafter............................................... 238,000
----------
Total minimum lease payments............................. $3,115,000
==========
</TABLE>
Legal Proceedings
Student Advantage is from time to time subject to legal proceedings and
claims which arise in the normal course of its business. In the opinion of
management, the amount of ultimate liability with respect to these actions will
not have a material adverse effect on Student Advantage's financial position or
results of operations.
12. SUBSEQUENT EVENT
On April 1, 1999, Student Advantage completed its acquisitions of The
Travel Holding Group, LLC and The Campus Agency, LLC. The Campus Agency provides
media planning and strategy consulting services to the U.S. student travel
market. The Travel Holding Group is a reseller of Eurail passes. The
acquisitions have been accounted for under the purchase method of accounting and
the results of operations of each company will be included in Student
Advantage's results beginning on the acquisition date. Goodwill and other
intangible assets in the aggregate amount of $280,000 were recorded in
connection with these acquisitions and will be amortized over 3 years. Because
the historical results of Campus Agency and Travel Holding Group are immaterial,
pro forma financial information has not been presented.
F-17
<PAGE> 80
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Student Advantage, Inc.
In our opinion, the accompanying balance sheet and the related statements
of operations, of changes in stockholders' equity and of cash flows present
fairly, in all material respects, the financial position of Collegiate
Advantage, Inc. at December 31, 1997, and the results of its operations and its
cash flows for the year then ended, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
April 5, 1999
F-18
<PAGE> 81
COLLEGIATE ADVANTAGE, INC.
BALANCE SHEET
DECEMBER 31, 1997
<TABLE>
<S> <C>
ASSETS
Current assets
Cash...................................................... $ 304,665
Accounts receivable (net of allowance for doubtful
accounts of $20,000)................................... 851,195
Costs in excess of billings............................... 65,337
Prepaid expenses and other current assets................. 25,442
----------
Total current assets.............................. 1,246,639
Fixed assets, net........................................... 275,630
Deposits.................................................... 15,194
----------
Total assets...................................... $1,537,463
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accrued payroll........................................... $ 131,099
Accounts payable.......................................... 265,470
Deferred revenue.......................................... 371,092
----------
Total current liabilities......................... 767,661
----------
Commitments (Note 4)
Stockholders' equity
Capital stock, no par value; 15,000 shares authorized; 100
shares issued and outstanding at December 31, 1997..... 2,000
Retained earnings......................................... 767,802
----------
Total stockholders' equity........................ 769,802
----------
Total liabilities and stockholders' equity........ $1,537,463
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-19
<PAGE> 82
COLLEGIATE ADVANTAGE, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
Revenue..................................................... $4,849,270
Cost of revenue............................................. 3,812,075
----------
Gross profit.............................................. 1,037,195
General and administrative expenses......................... 1,207,580
----------
Loss from operations...................................... (170,385)
----------
Interest and other income:
Interest income........................................... 10,209
Other income.............................................. 17,611
----------
27,820
----------
Net loss.................................................... $ (142,565)
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE> 83
COLLEGIATE ADVANTAGE, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
COMMON STOCK
------------------
CARRYING RETAINED
SHARES VALUE EARNINGS TOTAL
------ -------- ---------- ----------
<S> <C> <C> <C> <C>
Balance at December 31, 1996..................... 100 $2,000 $1,041,517 $1,043,517
Net loss......................................... (142,565) (142,565)
Dividends paid................................... (131,150) (131,150)
--- ------ ---------- ----------
Balance at December 31, 1997..................... 100 $2,000 $ 767,802 $ 769,802
=== ====== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-21
<PAGE> 84
COLLEGIATE ADVANTAGE, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss.................................................. $(142,565)
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 110,691
Changes in operating assets and liabilities
Accounts receivable.................................. (132,065)
Costs in excess of billings.......................... 37,531
Prepaid expenses and other current assets............ 12,353
Accrued payroll...................................... 131,099
Accounts payable..................................... 15,039
Deferred revenue..................................... 353,092
---------
Net cash provided by operating activities......... 385,175
---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of fixed assets................................. (88,516)
---------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid............................................ (131,150)
---------
Net increase in cash........................................ 165,509
Cash, beginning of year..................................... 139,156
---------
Cash, end of year........................................... $ 304,665
=========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for interest.................... $ 338
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-22
<PAGE> 85
COLLEGIATE ADVANTAGE, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION, NATURE OF BUSINESS AND BASIS OF PRESENTATION
Collegiate Advantage, Inc. operates in one business segment and is engaged
primarily in providing promotional, marketing and advertising services on
college campuses throughout the United States.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Cash
All highly liquid investments with an original maturity of three months or
less are considered to be cash equivalents. The Company maintains its cash in
bank deposit accounts which at times, may exceed federally insured limits. The
Company does not believe that it is exposed to significant credit risk
concerning cash and cash equivalents.
Accounts Receivable, Concentration of Credit Risk and Significant Customers
Financial statements which potentially expose the Company to concentrations
of credit risk include accounts receivable. The Company does not require
collateral but closely monitors amounts receivable from customers.
During 1997, the Company earned approximately 61% of its revenue from one
customer. Additionally, the Company had $433,222 of accounts receivable and
$371,092 of deferred revenue related to this customer at December 31, 1997.
Fixed Assets
Fixed assets are recorded at cost and depreciated using the straight-line
method over their estimated useful lives. Maintenance and repairs costs are
expensed as incurred.
Income Taxes
Collegiate Advantage has elected, by consent of its stockholders, to be
taxed under the provisions of Subchapter S of the Internal Revenue Code for
income tax return purposes. Under these provisions, the Company does not pay
Federal income taxes on its taxable income. Instead, the stockholders are liable
for individual Federal income taxes on the Company's taxable income. Thus, the
Company does not incur Federal income tax obligations.
Advertising Expense
Collegiate Advantage recognizes advertising expense as incurred.
Advertising expense was approximately $11,469 for the year ended December 31,
1997.
F-23
<PAGE> 86
COLLEGIATE ADVANTAGE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Revenue Recognition
Revenue is recognized as services are performed, provided that all
significant obligations have been fulfilled and collection of the related
receivable is probable. Billings and payments in advance of the recognition of
revenue are recorded as deferred revenue.
3. FIXED ASSETS
Fixed assets consist of the following:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIVES DECEMBER 31,
(IN YEARS) 1997
------------ ------------
<S> <C> <C>
Computers and equipment.............................. 5 $374,381
Furniture and fixtures............................... 5 - 7 37,523
Motor vehicles....................................... 3 107,626
Leasehold improvements............................... 3 23,050
--------
542,580
Less -- accumulated depreciation and amortization.... (266,950)
--------
$275,630
========
</TABLE>
Depreciation and amortization expense totaled $110,691 for the year ended
December 31, 1997.
4. COMMITMENTS
Service Agreement
During 1997, Collegiate Advantage negotiated the redemption of a 50%
stockholder's interest in the Company. The stock was purchased directly from the
50% stockholder by another stockholder of the Company. In connection with this
arrangement, the Company entered into a service consulting agreement with the
former stockholder which expires on December 31, 2000 unless terminated earlier
under the provisions of the agreement. The Company is required to pay $25,000 on
the last day of each calendar quarter commencing on March 31, 1998.
Leases
Collegiate Advantage leases its facilities and certain equipment under
operating leases extending through 1998. In addition to rent, Collegiate
Advantage is responsible for incremental operating costs, including real estate
taxes, on each property. Expenses incurred under these leases during the year
ended December 31, 1997 totaled $193,483.
Future minimum lease payments under operating leases are as follows:
<TABLE>
<S> <C>
1998...................................................... $187,099
1999...................................................... 91,290
--------
$278,389
========
</TABLE>
5. EMPLOYEE BENEFIT PLANS
During 1995, Collegiate Advantage implemented a defined contribution profit
sharing plan covering all eligible employees. Employer contributions are at the
discretion of management. Collegiate Advantage elected not to make any
contributions to the plan in 1997.
F-24
<PAGE> 87
COLLEGIATE ADVANTAGE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
In addition, Collegiate Advantage established an employee savings and
profit sharing plan during 1995. Employees may contribute to the employee
savings plan subject to the provisions of Code Section 401(k) of the Internal
Revenue Code. Collegiate Advantage matches employee contributions up to 6.0% of
eligible compensation. Collegiate Advantage contributed $20,031 to this plan in
1997.
6. LINE OF CREDIT
During 1997, the Company entered into a $450,000 line of credit agreement
with a bank. Borrowings under the agreement bear interest at the bank's prime
rate plus 0.5% (9.0% at December 31, 1997). At December 31, 1997, there were no
advances outstanding under this line of credit.
7. RELATED PARTY TRANSACTIONS
During 1997, Collegiate Advantage, Inc. paid $373,883 to Event Staffers,
L.L.C., a related company under common control, for payroll services provided to
Collegiate Advantage and related administrative expenses.
8. SUBSEQUENT EVENT
The Company entered into an agreement effective January 1, 1998 to be
purchased by Student Advantage. Student Advantage, paid $601,000 and assumed
$275,000 of the Company's liabilities in connection with the acquisition.
Student Advantage may be required to pay additional consideration based on the
future performance of the Company's former business.
F-25
<PAGE> 88
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Student Advantage, Inc.
In our opinion, the accompanying balance sheet and the related statements
of operations, of changes in stockholders' deficit and of cash flows present
fairly, in all material respects, the financial position of The Main Quad, Inc.
at December 6, 1997, and the results of its operations and its cash flows for
the period from January 1, 1997 through December 6, 1997, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
April 5, 1999
F-26
<PAGE> 89
THE MAIN QUAD, INC.
BALANCE SHEET
DECEMBER 6, 1997
<TABLE>
<S> <C>
ASSETS
Current assets
Accounts receivable....................................... $ 32,743
Prepaid expenses.......................................... 5,800
---------
Total current assets.............................. 38,543
Fixed assets, net........................................... 18,431
---------
Total assets...................................... $ 56,974
=========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable.......................................... $ 45,608
Advance from Student Advantage............................ 25,000
Current portion of capital lease obligations.............. 10,019
Notes payable founders and related parties................ 187,511
---------
Total current liabilities......................... 268,138
Capital lease obligations................................... 1,790
---------
Total liabilities................................. 269,928
---------
Commitments (Note 6)
Stockholders' deficit
Series A Preferred Stock, $0.50 par value; 500,000 shares
authorized; 120,000 shares issued and outstanding at
December 6, 1997....................................... 60,000
Series B Preferred Stock, $0.55 par value; 570,000 shares
authorized; 387,724 shares issued and outstanding at
December 6, 1997....................................... 213,248
Common Stock, $0.01 par value; 5,000,000 shares
authorized; 1,560,000 shares issued and outstanding at
December 6, 1997....................................... 15,600
Stock subscription receivable............................. (13,120)
Accumulated deficit....................................... (488,682)
---------
Total stockholders' deficit....................... (212,954)
---------
Total liabilities and stockholders' deficit....... $ 56,974
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-27
<PAGE> 90
THE MAIN QUAD, INC.
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM JANUARY 1, 1997 THROUGH DECEMBER 6, 1997
<TABLE>
<S> <C>
Revenue..................................................... $ 96,908
Cost of revenue............................................. 46,118
---------
Gross profit.............................................. 50,790
---------
Operating expenses
Product development....................................... 31,232
Selling and marketing..................................... 22,313
General and administrative................................ 125,531
---------
179,076
---------
Net loss.................................................. $(128,286)
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-28
<PAGE> 91
THE MAIN QUAD, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE PERIOD FROM JANUARY 1, 1997 THROUGH DECEMBER 6, 1997
<TABLE>
<CAPTION>
SERIES A SERIES B
PREFERRED STOCK PREFERRED STOCK COMMON STOCK
----------------- ------------------ ------------------- SUBSCRIPTION ACCUMULATED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT RECEIVABLE DEFICIT TOTAL
------- ------- ------- -------- --------- ------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1,
1997.................... 120,000 $60,000 1,560,000 $15,600 $(13,120) $(360,396) $(297,916)
Issuance of Series B
Preferred Stock......... 387,724 $213,248 213,248
Net loss.................. (128,286) (128,286)
------- ------- ------- -------- --------- ------- -------- --------- ---------
Balance, December 6,
1997.................... 120,000 $60,000 387,724 $213,248 1,560,000 $15,600 $(13,120) $(488,682) $(212,954)
======= ======= ======= ======== ========= ======= ======== ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-29
<PAGE> 92
THE MAIN QUAD, INC.
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM JANUARY 1, 1997 THROUGH DECEMBER 6, 1997
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss.................................................. $(128,286)
Adjustments to reconcile net loss to net cash used for
operating activities:
Depreciation and amortization.......................... 28,582
Changes in operating assets and liabilities
Accounts receivable.................................. (24,480)
Prepaid expenses..................................... (2,850)
Other assets......................................... 45,285
Accounts payable..................................... (24,060)
Accrued expenses..................................... (9,736)
Deferred revenue..................................... (550)
---------
Net cash used for operating activities............... (116,095)
---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of fixed assets................................. (1,359)
---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of Series B Preferred Stock........ 213,248
Advance from Student Advantage............................ 25,000
Repayment of notes........................................ (110,234)
Payment of capital leases................................. (10,607)
---------
Net cash provided by financing activities............ 117,407
---------
Net decrease in cash........................................ (47)
Cash, beginning of period................................... 47
---------
Cash, end of period......................................... $ --
=========
Supplemental disclosure of cash flow information
Cash paid for interest.................................... $ 2,275
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-30
<PAGE> 93
THE MAIN QUAD, INC.
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF THE BUSINESS
The Main Quad, Inc. (the "Company") is organized as a California
corporation. The Company also runs a comprehensive Web site positioned as an
online collection of services and content for students in the United States.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
The Company derives revenue from advertisements placed on its Web site and
from providing other advertising services to corporate sponsors participating in
the network. Sponsor advertising revenue is recognized when all significant
obligations have been fulfilled and collection of the related receivable is
probable. Web site advertising revenue is recognized as the related impressions
are displayed, provided that no significant obligations of the Company remain
and collection of the related receivable is probable.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Concentration of Credit Risk and Significant Customers
Financial instruments which potentially expose the Company to concentration
of credit risk include accounts receivable. The Company does not require
collateral but closely monitors amounts receivable from customers.
Revenue of approximately $27,000 (28%) and $14,500 (15%) was attributable
to two separate customers during the period from January 1, 1997 through
December 6, 1997.
Fixed Assets
Fixed assets are recorded at cost and depreciated using the straight-line
method over their estimated useful lives. Maintenance and repair costs are
expenses as incurred.
3. FIXED ASSETS
Fixed assets consist of the following:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE DECEMBER 6,
(YEARS) 1997
----------- -----------
<S> <C> <C>
Computer equipment and software....................... 3 $ 26,646
Furniture and fixtures................................ 5 3,250
Office equipment...................................... 5 35,332
--------
65,228
Less -- accumulated depreciation and amortization..... (46,797)
--------
$ 18,431
========
</TABLE>
F-31
<PAGE> 94
THE MAIN QUAD, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Depreciation and amortization expense totaled $28,572 for the period from
January 1, 1997 through December 6, 1997.
4. BORROWINGS
The Company's borrowings consist of the following at December 6, 1997:
<TABLE>
<CAPTION>
DECEMBER 6,
1997
-----------
<S> <C> <C>
Notes payable, founders:
Non-interest bearing promissory notes payable to founders............. $ 21,215
Notes payable, other related parties:
Non-interest bearing promissory notes payable to other related
parties.......................................................... 166,296
--------
$187,511
========
</TABLE>
5. SERIES A AND SERIES B PREFERRED STOCK
The Series A and Series B Preferred Stock have the following
characteristics:
Voting
Except with regard to actions on which the Series A and Series B
Stockholders are entitled to vote as a separate class, the holders of Series A
and Series B Preferred Stock vote together with all other classes and series of
stock on all actions to be taken by the stockholders of the Company.
Dividends
The holders of the outstanding Series A and Series B Preferred Stock shall
be entitled to receive, when and as declared by the Board of Directors,
dividends at the rate of 8% ($0.04) per share per annum, payable in preference
and priority to any payment of any dividend on Common Stock. Such preferential
dividend rights of the Series A and Series B Preferred Stock shall have equal
priority to one another. Such dividends shall not be cumulative, and no right to
such dividends shall accrue to holders of Series A or Series B Preferred Stock
unless declared by the Board of Directors.
Liquidation Preference
In the event of any liquidation, dissolution, or winding-up of the Company,
the holders of Series A and Series B Preferred Stock are entitled to receive,
prior to and in preference to holders of Common Stock, the amount equal to the
original purchase price for their respective series of Preferred Stock on a pro
rata basis with all Preferred Stockholders, plus an amount equal to all declared
but unpaid dividends on the Series A and Series B Preferred Stock.
Conversion
Each share of Series A and Series B Preferred Stock may be converted, at
the option of the holders thereof, at any time after the date of the issuance,
into one share of Common Stock, subject to adjustment in the event of stock
split, combination or recapitalization.
Warrants
In connection with the issuance of Series A and Series B Preferred Stock,
the Company issued warrants to purchase 40,000 shares of Series A Preferred
Stock and 69,093 shares of Series B Preferred
F-32
<PAGE> 95
THE MAIN QUAD, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Stock at their respective par values. These warrants are immediately
exercisable, and will terminate five years from the date of issuance, unless the
Company's initial sale of its Common Stock in a public offering or the
acquisition of the Company occurs prior to that date.
6. COMMON STOCK
Each share of Common Stock entitles the holder to one vote on all matters
submitted to a vote of the Company's stockholders. Common stockholders are
entitled to receive dividends, if any, as may be declared by the Board of
Directors, subject to the preferential dividend rights of the Series A and
Series B Preferred stockholders.
7. COMMITMENTS
The Company leases its office space and certain office equipment under
non-cancelable operating and capital leases. Total rent expense under these
leases was approximately $41,600 for the period from January 1, 1997 through
December 6, 1997.
Future minimum lease commitments at December 6, 1997 are as follows:
<TABLE>
<CAPTION>
CAPITAL
YEAR ENDING DECEMBER 31, LEASES
- ------------------------ -------
<S> <C>
1998..................................................... $11,063
1999..................................................... 1,844
-------
12,097
Less: portion representing interest...................... (1,098)
-------
$11,809
=======
</TABLE>
There are no lease commitments for the period from December 7, 1997 through
December 31, 1997.
8. SUBSEQUENT EVENT
In December of 1997, the Company was purchased by Student Advantage.
Student Advantage paid $272,000 in cash and issued 270 Members' Interests with
an estimated fair value of $106,000 in exchange for the net assets of the
Company, which consisted of certain office equipment as well as customer lists,
non-compete agreements and other intangible assets. In 1998, the agreement was
amended to eliminate the contingency provisions, and Student Advantage agreed to
issue an additional 480 Members' Interests with an aggregate fair value of
$225,000.
F-33
<PAGE> 96
[The graphic on the inside back cover is a triangle centered in the middle
of the page with the terms students, universities and businesses on each point
of the triangle.
A circle in the middle of the triangle has 3 arrows pointing towards
students, businesses and universities and represents Student Advantage as the
intersection of these three communities. The Student Advantage logo is at the
top of the page and the heading Student Advantage is centered beneath the logo.]
<PAGE> 97
[LOGO]
<PAGE> 98
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses, in connection with the
sale and distribution of the securities being registered. All amounts shown are
estimates except for the Securities and Exchange Commission registration fee and
the NASD filing fee.
<TABLE>
<CAPTION>
<S> <C>
SEC registration fee........................................ $ 22,379
NASD filing fee............................................. 8,550
Nasdaq National Market listing fee.......................... *
Blue Sky fees and expenses.................................. *
Transfer Agent and Registrar fees........................... 10,000
Accounting fees and expenses................................ *
Legal fees and expenses..................................... *
Printing and mailing expenses............................... *
Miscellaneous............................................... *
---------
Total............................................. $ *
=========
</TABLE>
- ---------------
* To be completed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article EIGHTH of the Registrant's Amended and Restated Certificate of
Incorporation (the "Restated Certificate of Incorporation") provides that no
director of the Registrant shall be personally liable for any monetary damages
for any breach of fiduciary duty as a director, except to the extent that the
Delaware General Corporation Law prohibits the elimination or limitation of
liability of directors for breach of fiduciary duty.
Article NINTH of the Registrant's Amended and Restated Certificate of
Incorporation provides that a director or officer of the Registrant (a) shall be
indemnified by the Registrant against all expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement incurred in connection with any
litigation or other legal proceeding (other than an action by or in the right of
the Registrant) brought against him by virtue of his position as a director or
officer of the Registrant if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
Registrant, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful and (b) shall be
indemnified by the Registrant against all expenses (including attorneys' fees)
and amounts paid in settlement incurred in connection with any action by or in
the right of the Registrant brought against him by virtue of his position as a
director or officer of the Registrant if he acted in good faith and in a manner
he reasonably believed to be in, or not opposed to, the best interests of the
Registrant, except that no indemnification shall be made with respect to any
matter as to which such person shall have been adjudged to be liable to the
Registrant, unless the Court of Chancery of Delaware determines that, despite
such adjudication but in view of all of the circumstances, he is entitled to
indemnification of such expenses. Notwithstanding the foregoing, to the extent
that a director or officer has been successful, on the merits or otherwise,
including, without limitation, the dismissal of an action without prejudice, he
is required to be indemnified by the Registrant against all expenses (including
attorneys' fees) incurred in connection therewith. Expenses shall be advanced to
a director or officer at his request, unless it is determined that he did not
act in good faith and in a manner he reasonably believed to be in, or not
opposed to, the best interests of the Registrant, and, with respect to any
criminal action or proceeding had reasonable cause to believe that his conduct
was unlawful, provided that he undertakes to repay the amount advanced if it is
ultimately determined that he is not entitled to indemnification for such
expenses.
II-1
<PAGE> 99
Indemnification is required to be made unless the Registrant determines
that the applicable standard of conduct required for indemnification has not
been met. In the event of a determination by the Registrant that the director or
officer did not meet the applicable standard of conduct required for
indemnification, or if the Registrant fails to make an indemnification payment
within 60 days after such payment is claimed by such person, such person is
permitted to petition the court to make an independent determination as to
whether such person is entitled to indemnification. As a condition precedent to
the right of indemnification, the director or officer must give the Registrant
notice of the action for which indemnity is sought and the Registrant has the
right to participate in such action or assume the defense thereof.
Article NINTH of the Registrant's Amended and Restated Certificate of
Incorporation further provides that the indemnification provided therein is not
exclusive, and provides that in the event that the Delaware General Corporation
Law is amended to expand the indemnification permitted to directors or officers
the Registrant must indemnify those persons to the fullest extent permitted by
such law as so amended.
Section 145 of the Delaware General Corporation Law provides that a
corporation has the power to indemnify a director, officer, employee or agent of
the corporation and certain other persons serving at the request of the
corporation in related capacities against amounts paid and expenses incurred in
connection with an action or proceeding to which he is or is threatened to be
made a party by reason of such position, if such person shall have acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and, in any criminal proceeding, if such person
had no reasonable cause to believe his conduct was unlawful; provided that, in
the case of actions brought by or in the right of the corporation, no
indemnification shall be made with respect to any matter as to which such person
shall have been adjudged to be liable to the corporation unless and only to the
extent that the adjudicating court determines that such indemnification is
proper under the circumstances.
The Registrant has entered into agreements to indemnify its directors and
officers, in addition to the indemnification provided for in the Registrant's
Amended and Restated Certificate of Incorporation. These agreements, among other
things, indemnify the Registrant's directors and officers for certain expenses
(including attorneys' fees and associated legal expenses), judgments, fines and
amounts paid in settlement amounts, actually and reasonably incurred by any such
person's services as a director or officer of the Registrant or any other
company or enterprise to which the person provides services at the request of
the Registrant, if such officer or director acted in good faith and in a manner
which he or she reasonably believed to be in, or not opposed to the best
interests of the Registrant and with respect to any criminal proceeding, had no
reasonable cause to believe his conduct was unlawful.
Under Section 7 of the Underwriting Agreement, the Underwriters are
obligated, under certain circumstances, to indemnify directors and officers of
the Registrant against certain liabilities, including liabilities under the
Securities Act. Reference is made to the form of Underwriting Agreement filed as
Exhibit 1 hereto.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Set forth in chronological order is information regarding shares of common
stock issued and options granted by the Registrant since March 1996. Further
included is the consideration, if any, received by the Registrant for such
shares, warrants and options and information relating to the section of the
Securities Act of 1933, as amended (the "Securities Act"), or rule of the
Securities and Exchange Commission under which exemption from registration was
claimed.
(a) Issuances of Capital Stock.
1. In February 1996, Student Advantage LLC issued 111 membership units of
the predecessor LLC to David Liniado in connection with the purchase of
certain assets from David M. Liniado d/b/a DML Enterprises.
II-2
<PAGE> 100
2. In March 1996, Student Advantage LLC sold 2,479 membership units in the
predecessor LLC to Princeton Review Publishing, L.L.C. for $250,000.
3. In May 1996, Ms. Abegglen exercised options to purchase 350 membership
units of the predecessor LLC.
4. In April 1997, Student Advantage LLC issued 239 membership units to Mr.
Liniado in satisfaction of obligations under an asset purchase
agreement.
5. In December 1997, Student Advantage issued 270 membership units to The
Main Quad, Inc. in connection with an asset purchase agreement. In
October 1998, Student Advantage issued an additional 480 membership
units in satisfaction of obligations under an ancillary agreement to
such asset purchase agreement.
6. On October 20, 1998, in connection with the recapitalization of Student
Advantage LLC, Student Advantage, Inc. issued a total of 16,133,892
shares of common stock and 1,497,036 shares of Series A convertible
preferred stock (convertible into 4,491,108 shares of common stock) in
exchange for LLC interests.
7. On October 20, 1998, the Registrant sold an aggregate of 1,250,000
shares of Series A Convertible Preferred Stock (convertible into
3,750,000 shares of common stock) to Greylock IX Limited Partnership and
Marc Turtletaub for $10.0 million.
(b) Certain Grants and Exercises of Stock Options. The Registrant's 1998
Stock Incentive Plan and the 1998 California Stock Incentive Plan were adopted
by the Board of Directors and approved by the stockholders of the Registrant on
December 10, 1998. As of April 5, 1999, options to purchase 120,000 shares of
common stock had been exercised for a consideration of $40,000 under the
Registrant's 1998 Stock Incentive Plan and options to purchase 2,222,550 shares
of common stock were outstanding under the Registrant's 1998 Stock Incentive
Plan.
The securities issued in the foregoing transactions were either (i) offered
and sold in reliance upon exemptions from Securities Act registration set forth
in Sections 3(b) and 4(2) of the Securities Act, or any regulations promulgated
thereunder, relating to sales by an issuer not involving any public offering, or
(ii) in the case of certain options to purchase shares of common stock and
shares of common stock issued upon the exercise of such options, such offers and
sales were made in reliance upon an exemption from registration under Rule 701
of the Securities Act. No underwriters were involved in the foregoing sales of
securities
II-3
<PAGE> 101
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
1 Form of Underwriting Agreement.*
3.1 Certificate of Incorporation of the Registrant, as amended.
3.2 Amended and Restated Certificate of Incorporation of the
Registrant, to be effective upon the closing of this
offering.*
3.3 Restated Bylaws of the Registrant, as amended.
3.4 Amended and Restated By-Laws of the Registrant, to be
effective upon the closing of this offering.*
4.1 Specimen certificate for shares of common stock.*
5 Opinion of Hale and Dorr LLP.*
10.1 1998 Stock Incentive Plan, including form of stock option
agreement for incentive stock option.
10.2 1999 Employee Stock Purchase Plan.*
10.3 Loan and Security Agreement between US Trust Bank and the
Company, dated March 31, 1999.*
10.4 Form of Indemnification Agreement between the Company and
each of its directors and officers.
10.5 Investor Rights Agreement, dated as of October 20, 1998,
among the Company and certain stockholders.
10.6 Employment Agreement, dated March 25, 1996, between the
Company and Raymond V. Sozzi, Jr., as amended by First
Amendment to Employment Agreement, dated as of October 20,
1998.
10.7 Agreement, effective as of February 1, 1997, between AT&T
Communications, Inc. and the Company.*
10.8 Marketing Agreement, effective February 1, 1998, between
AT&T Corp. and the Company.*
10.9 Notice of AT&T's Election to Extend Agreements, dated July
14, 1998.*
10.10 Leases for premises at 280 Summer Street, Boston,
Massachusetts.
10.11 Investment Agreement, dated March 25, 1996, between the
Company and Princeton Review Publishing, L.L.C.
10.12 Letter Agreement, dated September 8, 1997, between the
Company and Princeton Review Publishing, L.L.C.
10.13 Letter Agreement, dated October 20, 1998, between the
Company and Princeton Review Publishing, L.L.C.
10.14 Master Services Agreement, dated December 22, 1997, between
USWEB NY Central and the Company.*
10.15 Promissory Note (Equipment) to USTrust dated March 31,
1999.*
10.16 Master Note to US Trust Bank March 31, 1999.*
11.1 Statement re: Computation of net loss per share and
unaudited pro forma net loss per share.
23.1 Consent of PricewaterhouseCoopers LLP (Student Advantage,
Inc.)
23.2 Consent of PricewaterhouseCoopers LLP (Collegiate Advantage,
Inc.)
23.3 Consent of PricewaterhouseCoopers LLP (The Main Quad, Inc.)
23.4 Consent of Hale and Dorr LLP (included in Exhibit 5).*
24 Power of Attorney (included on page II-6).
27 Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
II-4
<PAGE> 102
(b) FINANCIAL STATEMENT SCHEDULES
All schedules have been omitted because they are not required or because
the required information is given in the Registrant's Financial Statements or
Notes thereto.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions contained in the Amended and Restated
Certificate of Incorporation of the Registrant and the laws of the State of
Delaware, or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1)
or (4) or 497(h) under the Securities Act shall be deemed to be part of
this Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
II-5
<PAGE> 103
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Boston, Massachusetts, on this 7th
day of April, 1999.
STUDENT ADVANTAGE, INC.
By: /s/ RAYMOND V. SOZZI, JR.
------------------------------------
Raymond V. Sozzi, Jr.
Chairman of the Board, President
and Chief Executive Officer
POWER OF ATTORNEY AND SIGNATURES
We, the undersigned officers and directors of Student Advantage, Inc.,
hereby severally constitute and appoint Raymond V. Sozzi, Jr., Christopher B.
Andrews and Mark G. Borden, and each of them singly, our true and lawful
attorneys with full power to them, and each of them singly, to sign for us and
in our names in the capacities indicated below, the Registration Statement on
Form S-1 filed herewith and any and all pre-effective and post-effective
amendments to said Registration Statement, and any subsequent Registration
Statement for the same offering which may be filed under Rule 462(b), and
generally to do all such things in our names and on our behalf in our capacities
as officers and directors to enable Student Advantage, Inc. to comply with the
provisions of the Securities Act of 1933, as amended, and all requirements of
the Securities and Exchange Commission, hereby ratifying and confirming our
signatures as they may be signed by our said attorneys, or any of them, to said
Registration Statement and any and all amendments thereto or to any subsequent
Registration Statement for the same offering which may be filed under Rule
462(b).
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ RAYMOND V. SOZZI, JR. Chairman of the Board, President and April 7, 1999
- -------------------------------------- Chief Executive Officer
Raymond V. Sozzi, Jr.
/s/ CHRISTOPHER B. ANDREWS Vice President, Finance and April 7, 1999
- -------------------------------------- Administration, Treasurer and
Christopher B. Andrews Secretary (Principal Financial and
Accounting Officer)
/s/ WILLIAM S. KAISER Director April 7, 1999
- --------------------------------------
William S. Kaiser
/s/ JOHN KATZMAN Director April 7, 1999
- --------------------------------------
John Katzman
/s/ MARC TURTLETAUB Director April 7, 1999
- --------------------------------------
Marc Turtletaub
</TABLE>
II-6
<PAGE> 104
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
1 Form of Underwriting Agreement.*
3.1 Certificate of Incorporation of the Registrant, as amended.
3.2 Amended and Restated Certificate of Incorporation of the
Registrant, to be effective upon the closing of this
offering.*
3.3 Restated Bylaws of the Registrant, as amended.
3.4 Amended and Restated By-Laws of the Registrant, to be
effective upon the closing of this offering.*
4.1 Specimen certificate for shares of common stock.*
5 Opinion of Hale and Dorr LLP.*
10.1 1998 Stock Incentive Plan, including form of stock option
agreement for incentive stock option.
10.2 1999 Employee Stock Purchase Plan.*
10.3 Loan and Security Agreement between US Trust Bank and the
Company, dated March 31, 1999.*
10.4 Form of Indemnification Agreement between the Company and
each of its directors and officers.
10.5 Investor Rights Agreement, dated as of October 20, 1998,
among the Company and certain stockholders.
10.6 Employment Agreement, dated March 25, 1996, between the
Company and Raymond V. Sozzi, Jr., as amended by First
Amendment to Employment Agreement, dated as of October 20,
1998.
10.7 Agreement, effective as of February 1, 1997, between AT&T
Communications, Inc. and the Company.*
10.8 Marketing Agreement, effective February 1, 1998, between
AT&T Corp. and the Company.*
10.9 Notice of AT&T's Election to Extend Agreements, dated July
14, 1998.*
10.10 Leases for premises at 280 Summer Street, Boston,
Massachusetts.
10.11 Investment Agreement, dated March 25, 1996, between the
Company and Princeton Review Publishing, L.L.C.
10.12 Letter Agreement, dated September 8, 1997, between the
Company and Princeton Review Publishing, L.L.C.
10.13 Letter Agreement, dated October 20, 1998, between the
Company and Princeton Review Publishing, L.L.C.
10.14 Master Services Agreement, dated December 22, 1997, between
USWEB NY Central and the Company.*
10.15 Promissory Note (Equipment) to US Trust dated March 31,
1999.*
10.16 Master Note to US Trust Bank March 31, 1999.*
11.1 Statement Re: Computation of net loss per share and
unaudited pro forma net loss per share.
23.1 Consent of PricewaterhouseCoopers LLP (Student Advantage,
Inc.)
23.2 Consent of PricewaterhouseCoopers LLP (Collegiate Advantage,
Inc.)
23.3 Consent of PricewaterhouseCoopers LLP (The Main Quad, Inc.)
23.4 Consent of Hale and Dorr LLP (included in Exhibit 5).*
24 Power of Attorney (included on page II-6).
27 Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
<PAGE> 1
Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
STUDENT ADVANTAGE, INC.
The undersigned, a natural person, for the purpose of organizing a
corporation for conducting the business and promoting the purposes hereinafter
stated, under the provisions and subject to the requirements of the laws of the
State of Delaware (particularly Chapter 1, Title 8 of the Delaware Code and the
acts amendatory thereof and supplemental thereto, and known, identified and
referred to as the "General Corporation Law of the State of Delaware"), hereby
certifies that:
FIRST: The name of the corporation (hereinafter called the
"Corporation") is STUDENT ADVANTAGE, INC.
SECOND: The address, including street, number, city and county, of the
registered office of the Corporation in the State of Delaware is 1013 Centre
Road, City of Wilmington, County of New Castle, and the name of the registered
agent of the Corporation in the State of Delaware at such address is Corporation
Service Company.
THIRD: The nature of the business or purposes to be conducted or
promoted is:
To engage in any lawful act or activity for which corporations
may be organized under the General Corporation Law of the
State of Delaware.
FOURTH: The total number of shares of stock which the Corporation shall
have authority to issue is 3,000 shares, par value $.01 per share, all of which
are of the same class and all of which are designated as common shares.
<PAGE> 2
FIFTH: The name and mailing address of the incorporator are as follows:
<TABLE>
<CAPTION>
NAME MAILING ADDRESS
---- ---------------
<S> <C>
Steven M. Lutt Shack & Siegel, P.C.
530 Fifth Avenue
New York, NY 10036
</TABLE>
SIXTH: The Corporation is to have perpetual existence.
SEVENTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said
-2-
<PAGE> 3
application has been made, be binding on all the creditors or class of
creditors, and/or on all the stockholders or class of stockholders, of this
Corporation, as the case may be, and also on this Corporation.
EIGHTH: In furtherance and not in limitation of the powers conferred by
statute, the board of directors is expressly authorized to make, alter, or
repeal the by-laws, and to adopt any new by-law, of the Corporation.
NINTH: To the fullest extent permitted by the General Corporation Law
of the State of Delaware, as the same may be amended and supplemented, no
director shall be personally liable to the Corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director.
TENTH: The Corporation shall, to the fullest extent permitted by
Section 145 of the General Corporation Law of the State of Delaware, as the same
may be amended and supplemented, (i) indemnify any and all persons whom it shall
have power to indemnify under said section from and against any and all of the
expenses, liabilities or other matters referred to in or covered by said
section, and (ii) advance expenses to any and all said persons. The
indemnification and advancement of expenses provided for herein shall not be
deemed exclusive of any other rights to which those indemnified may be entitled
under any by-law, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in their official capacities and as to action in
another capacity while holding such offices, and shall continue as to persons
who have ceased to be directors, officers, employees or agents and shall inure
to the benefit of the
-3-
<PAGE> 4
heirs, executors and administrators of such persons.
ELEVENTH: From time to time any of the provisions of this certificate
of incorporation may be amended, altered or repealed, and other provisions
authorized by the laws of the State of Delaware at the time in force may be
added or inserted in the manner and at the time prescribed by said law, and all
rights at any time conferred upon the stockholders of the Corporation by this
certificate of incorporation are granted subject to the provisions of this
Article ELEVENTH.
Signed on February 24, 1995.
/s/ Steven M. Lutt
-------------------------------
Steven M. Lutt, Incorporator
Shack & Siegel, P.C.
530 Fifth Avenue
New York, NY 10036
-4-
<PAGE> 5
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
STUDENT ADVANTAGE, INC.
Pursuant to Section 241
of the General Corporation Law of
the State of Delaware
Student Advantage, Inc. (hereinafter called the "Corporation"),
organized and existing under and by virtue of the General Corporation Law of the
State of Delaware, does hereby certify as follows:
The Corporation has not received any payment for any of its stock.
The Board of Directors of the Corporation by unanimous written consent
pursuant to Section 141(f) and Section 241 of the General Corporation Law of the
State of Delaware duly adopted a resolution setting forth an amendment to the
Certificate of Incorporation of the Corporation. The resolution setting forth
the amendment is as follows:
RESOLVED: That Article FOURTH of the Certificate of Incorporation of
the Corporation be and hereby is deleted in its entirety and the following
Article FOURTH is inserted in lieu thereof:
FOURTH: The total number of shares of all classes of stock which
the Corporation shall have authority to issue is (i) 15,000,000 shares of Common
Stock, $.01 par value per share ("Common Stock") and (ii) 4,000,000 shares of
Preferred Stock, $1.00 par value per share ("Preferred Stock").
The following is a statement of the designations and the powers,
privileges and rights, and the qualifications, limitations or restrictions
thereof in respect of each class of capital stock of the Corporation.
-1-
<PAGE> 6
A. COMMON STOCK.
1. General. The voting, dividend and liquidation rights of the holders
of the Common Stock are subject to and qualified by the rights of the holders of
the Preferred Stock of any series as may be designated by the Board of Directors
upon any issuance of the Preferred Stock of any series.
2. Voting. The holders of the Common Stock are entitled to one vote for
each share held at all meetings of stockholders (and written actions in lieu of
meetings). There shall be no cumulative voting.
The number of authorized shares of Common Stock may be increased or
decreased (but not below the number of shares thereof then outstanding) by the
affirmative vote of the holders of a majority of the stock of the Corporation
entitled to vote, irrespective of the provisions of Section 242(b)(2) of the
General Corporation Law of Delaware.
3. Dividends. Dividends may be declared and paid on the Common Stock
from funds lawfully available therefor as and when determined by the Board of
Directors and subject to any preferential dividend rights of any then
outstanding Preferred Stock.
4. Liquidation. Upon the dissolution or liquidation of the Corporation,
whether voluntary or involuntary, holders of Common Stock will be entitled to
receive all assets of the Corporation available for distribution to its
stockholders, subject to any preferential rights of any then outstanding
Preferred Stock.
B. PREFERRED STOCK.
Preferred Stock may be issued from time to time in one or more series,
each of such series to have such terms as stated or expressed herein and in the
resolution or resolutions providing for the issue of such series adopted by the
Board of Directors of the Corporation as hereinafter provided. Any shares of
Preferred Stock which may be redeemed, purchased or acquired by the Corporation
may be reissued except as otherwise provided by law. Different series of
Preferred Stock shall not be construed to constitute different classes of shares
for the purposes of voting by classes unless expressly provided.
Authority is hereby expressly granted to the Board of Directors from
time to time to issue the Preferred Stock in one or more series, and in
connection with the creation of any such series, by resolution or resolutions
providing for the issue of the shares thereof, to determine and fix such voting
powers, full or limited, or no voting
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<PAGE> 7
powers, and such designations, preferences and relative participating, optional
or other special rights, and qualifications, limitations or restrictions
thereof, including without limitation thereof, dividend rights, special voting
rights, conversion rights, redemption privileges and liquidation preferences, as
shall be stated and expressed in such resolutions, all to the full extent now or
hereafter permitted by the General Corporation Law of Delaware. Without limiting
the generality of the foregoing, the resolutions providing for issuance of any
series of Preferred Stock may provide that such series shall be superior or rank
equally or be junior to the Preferred Stock of any other series to the extent
permitted by law. Except as otherwise specifically provided in this Certificate
of Incorporation, no vote of the holders of the Preferred Stock or Common Stock
shall be a prerequisite to the issuance of any shares of any series of the
Preferred Stock authorized by and complying with the conditions of this
Certificate of Incorporation, the right to have such vote being expressly waived
by all present and future holders of the capital stock of the Corporation.
C. SERIES A CONVERTIBLE PREFERRED STOCK.
Two Million Seven Hundred Fifty Thousand (2,750,000) shares of the
authorized and unissued Preferred Stock of the Corporation are hereby designated
"Series A Convertible Preferred Stock" (the "Series A Preferred Stock") with the
following rights, preferences, powers, privileges and restrictions,
qualifications and limitations.
1. Dividends.
The Corporation shall not declare or pay any cash dividends on
shares of Common Stock until the holders of the Series A Preferred Stock then
outstanding shall have first received, or simultaneously receive, a cash
dividend on each outstanding share of Series A Preferred Stock in an amount at
least equal to the product of (i) the per share amount, if any, of the dividends
or other distributions to be declared, paid or set aside for the Common Stock,
multiplied by (ii) the number of whole shares of Common Stock into which such
share of Series A Preferred Stock is then convertible.
2. Liquidation, Dissolution or Winding Up; Certain Mergers,
Consolidations and Asset Sales.
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of shares of Series A
Preferred Stock then outstanding shall be entitled to be paid out of the assets
of the Corporation available for distribution to its stockholders, before any
payment shall be made to the holders of Common Stock or any other class or
series of stock ranking on liquidation junior to the Series A Preferred Stock
(such Common Stock and other stock being collectively referred to as "Junior
Stock") by reason of their ownership thereof, an amount equal to the greater of
(i) $8.00 per share (subject to appropriate adjustment in
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the event of any stock dividend, stock split, combination or other similar
recapitalization affecting such shares), plus any dividends declared but unpaid
thereon, or (ii) such amount per share as would have been payable had each such
share been converted into Common Stock pursuant to Section 4 immediately prior
to such liquidation, dissolution or winding up. If upon any such liquidation,
dissolution or winding up of the Corporation the remaining assets of the
Corporation available for distribution to its stockholders shall be insufficient
to pay the holders of shares of Series A Preferred Stock the full amount to
which they shall be entitled, the holders of shares of Series A Preferred Stock
and any class or series of stock ranking on liquidation on a parity with the
Series A Preferred Stock shall share ratably in any distribution of the
remaining assets and funds of the Corporation in proportion to the respective
amounts which would otherwise be payable in respect of the shares held by them
upon such distribution if all amounts payable on or with respect to such shares
were paid in full.
(b) After the payment of all preferential amounts required to
be paid to the holders of Series A Preferred Stock and any other class or series
of stock of the Corporation ranking on liquidation on a parity with the Series A
Preferred Stock, upon the dissolution, liquidation or winding up of the
Corporation, the holders of shares of Junior Stock then outstanding shall be
entitled to receive the remaining assets and funds of the Corporation available
for distribution to its stockholders.
(c) Any merger or consolidation of the Corporation or a
subsidiary of the Corporation into or with another corporation (except one in
which the holders of capital stock of the Corporation immediately prior to such
merger or consolidation continue to hold at least 66 2/3% by voting power of the
capital stock of the surviving or acquiring corporation), or sale of all or
substantially all the assets of the Corporation, shall be deemed to be a
liquidation of the Corporation for purposes of this Section 2, and the agreement
or plan of merger or consolidation with respect to such merger, consolidation or
sale shall provide that the consideration payable to the stockholders of the
Corporation (in the case of a merger or consolidation), or consideration payable
to the Corporation, together with all other available assets of the Corporation
(in the case of an asset sale), shall be distributed to the holders of capital
stock of the Corporation in accordance with Subsections 2(a) and 2(b) above. The
amount deemed distributed to the holders of Series A Preferred Stock upon any
such merger, consolidation or sale shall be the cash or the value of the
property, rights or securities distributed to such holders by the Corporation or
the acquiring person, firm or other entity. The value of such property, rights
or other securities shall be determined in good faith by the Board of Directors
of the Corporation.
3. Voting.
(a) Each holder of outstanding shares of Series A Preferred
Stock shall
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<PAGE> 9
be entitled to the number of votes equal to the number of whole shares of Common
Stock into which the shares of Series A Preferred Stock held by such holder are
then convertible (as adjusted from time to time pursuant to Section 4 hereof),
at each meeting of stockholders of the Corporation (and written actions of
stockholders in lieu of meetings) with respect to any and all matters presented
to the stockholders of the Corporation for their action or consideration. Except
as provided by law, by the provisions of Subsection 3(b) or 3(c) below or by the
provisions establishing any other series of Preferred Stock, holders of Series A
Preferred Stock and of any other outstanding series of Preferred Stock shall
vote together with the holders of Common Stock as a single class.
(b) The holders of record of the shares of Series A Preferred
Stock, exclusively and as a separate class, shall be entitled to elect two (2)
directors of the Corporation, and the holders of record of the shares of Common
Stock and of any other class or series of voting stock (including the Series A
Preferred Stock), exclusively and as a separate class, shall be entitled to
elect the balance of the total number of directors of the Corporation. At any
meeting held for the purpose of electing directors, the presence in person or by
proxy of the holders of a majority of the shares of Series A Preferred Stock
then outstanding shall constitute a quorum of the Series A Preferred Stock for
the purpose of electing directors by holders of the Series A Preferred Stock. A
vacancy in any directorship filled by the holders of Series A Preferred Stock
shall be filled only by vote or written consent in lieu of a meeting of the
holders of the Series A Preferred Stock.
(c) The Corporation shall not amend, alter or repeal the
preferences, special rights or other powers of the Series A Preferred Stock so
as to affect adversely the Series A Preferred Stock, without the written consent
or affirmative vote of the holders of a majority of the then outstanding shares
of Series A Preferred Stock, given in writing or by vote at a meeting,
consenting or voting (as the case may be) separately as a class.
4. Optional Conversion. The holders of the Series A Preferred
Stock shall have conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each share of Series A Preferred Stock
shall be convertible, at the option of the holder thereof, at any time and from
time to time, and without the payment of additional consideration by the holder
thereof, into such number of fully paid and nonassessable shares of Common Stock
as is determined by dividing $8.00 by the Series A Conversion Price (as defined
below) in effect at the time of conversion. The "Series A Conversion Price"
shall initially be $8.00. Such initial Series A Conversion Price, and the rate
at which shares of Series A Preferred Stock may be converted into shares of
Common Stock, shall be subject to adjustment as provided below.
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<PAGE> 10
In the event of a notice of redemption of any shares of Series A
Preferred Stock pursuant to Section 6 hereof, the Conversion Rights of the
shares designated for redemption shall terminate immediately prior to such
redemption, unless the redemption price is not paid when due, in which case the
Conversion Rights for such shares shall continue until such price is paid in
full. In the event of a liquidation of the Corporation, the Conversion Rights
shall terminate at the close of business on the first full day preceding the
date fixed for the payment of any amounts distributable on liquidation to the
holders of Series A Preferred Stock.
(b) Fractional Shares. No fractional shares of Common Stock
shall be issued upon conversion of the Series A Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the then
effective Series A Conversion Price.
(c) Mechanics of Conversion.
(i) In order for a holder of Series A Preferred Stock to
convert shares of Series A Preferred Stock into shares of Common Stock, such
holder shall surrender the certificate or certificates for such shares of Series
A Preferred Stock, at the office of the transfer agent for the Series A
Preferred Stock (or at the principal office of the Corporation if the
Corporation serves as its own transfer agent), together with written notice that
such holder elects to convert all or any number of the shares of the Series A
Preferred Stock represented by such certificate or certificates. Such notice
shall state such holder's name or the names of the nominees in which such holder
wishes the certificate or certificates for shares of Common Stock to be issued.
If required by the Corporation, certificates surrendered for conversion shall be
endorsed or accompanied by a written instrument or instruments of transfer, in
form satisfactory to the Corporation, duly executed by the registered holder or
his or its attorney duly authorized in writing. The date of receipt of such
certificates and notice by the transfer agent (or by the Corporation if the
Corporation serves as its own transfer agent) shall be the conversion date
("Conversion Date"), and the shares of Common Stock issuable upon conversion of
the shares represented by such certificates shall be deemed outstanding of
record as of such date. The Corporation shall, as soon as practicable after the
Conversion Date, issue and deliver at such office to such holder of Series A
Preferred Stock, or to his or its nominees, a certificate or certificates for
the number of shares of Common Stock to which such holder shall be entitled,
together with cash in lieu of any fraction of a share.
(ii) The Corporation shall at all times when the Series A
Preferred Stock shall be outstanding, reserve and keep available out of its
authorized but unissued stock, for the purpose of effecting the conversion of
the Series A Preferred Stock, such number of its duly authorized shares of
Common Stock as shall from time
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to time be sufficient to effect the conversion of all outstanding Series A
Preferred Stock. Before taking any action which would cause an adjustment
reducing the Series A Conversion Price below the then par value of the shares of
Common Stock issuable upon conversion of the Series A Preferred Stock, the
Corporation will take any corporate action which may, in the opinion of its
counsel, be necessary in order that the Corporation may validly and legally
issue fully paid and nonassessable shares of Common Stock at such adjusted
Series A Conversion Price.
(iii) Upon any such conversion, no adjustment to the
Series A Conversion Price shall be made for any declared but unpaid dividends on
the Series A Preferred Stock surrendered for conversion or on the Common Stock
delivered upon conversion.
(iv) All shares of Series A Preferred Stock which shall
have been surrendered for conversion as herein provided shall be deemed to have
been converted into shares of Common Stock immediately upon such surrender and
shall no longer be deemed to be outstanding, and all rights with respect to such
shares, including the rights, if any, to receive notices and to vote, shall
immediately cease and terminate on the Conversion Date, except only the right of
the holders thereof to receive shares of Common Stock in exchange therefor and
payment of any dividends declared but unpaid thereon. Any shares of Series A
Preferred Stock so converted shall be retired and cancelled and shall not be
reissued, and the Corporation (without the need for stockholder action) may from
time to time take such appropriate action as may be necessary to reduce the
authorized number of shares of Series A Preferred Stock accordingly.
(v) The Corporation shall pay any and all issue and other
taxes that may be payable in respect of any issuance or delivery of shares of
Common Stock upon conversion of shares of Series A Preferred Stock pursuant to
this Section 4. The Corporation shall not, however, be required to pay any tax
which may be payable in respect of any transfer involved in the issuance and
delivery of shares of Common Stock in a name other than that in which the shares
of Series A Preferred Stock so converted were registered, and no such issuance
or delivery shall be made unless and until the person or entity requesting such
issuance has paid to the Corporation the amount of any such tax or has
established, to the satisfaction of the Corporation, that such tax has been
paid.
(d) Adjustments to Series A Conversion Price for Diluting
Issues:
(i) Special Definitions. For purposes of this Subsection
4(d), the following definitions shall apply:
(A) "Option" shall mean rights, options or warrants
to
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<PAGE> 12
subscribe for, purchase or otherwise acquire Common Stock or Convertible
Securities.
(B) "Series A Original Issue Date" shall mean the date
on which a share of Series A Preferred Stock was first issued.
(C) "Convertible Securities" shall mean any evidences
of indebtedness, shares or other securities directly or indirectly convertible
into or exchangeable for Common Stock.
(D) "Additional Shares of Common Stock" shall mean all
shares of Common Stock issued (or, pursuant to Subsection 4(d)(iii) below,
deemed to be issued) by the Corporation after the Series A Original Issue Date,
other than:
(I) shares of Common Stock issued or issuable
upon conversion of any Convertible
Securities or exercise of any warrants
outstanding on the Series A Original Issue
Date;
(II) shares of Common Stock issued or issuable as
a dividend or distribution on Series A
Preferred Stock;
(III) shares of Common Stock issued or issuable by
reason of a dividend, stock split, split-up
or other distribution on shares of Common
Stock that is covered by Subsection 4(e) or
4(f) below; or
(IV) up to 1,400,000 shares of Common Stock
(subject to appropriate adjustment in the
event of any stock dividend, stock split,
combination or other similar
recapitalization affecting such shares),
issued or issuable to employees or directors
of, or consultants to, the Corporation
pursuant to a plan or arrangement approved
by the Board of Directors of the
Corporation; provided, that any Options for
such shares that expire or terminate
unexercised shall not be counted toward such
maximum number.
(ii) No Adjustment of Series A Conversion Price. No
adjustment in the number of shares of Common Stock into which the Series A
Preferred Stock is convertible shall be made, by adjustment in the applicable
Series A Conversion
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Price thereof: (a) unless the consideration per share (determined pursuant to
Subsection 4(d)(v)) for an Additional Share of Common Stock issued or deemed to
be issued by the Corporation is less than the applicable Series A Conversion
Price in effect immediately prior to the issue of such Additional Shares, or (b)
if prior to such issuance, the Corporation receives written notice from the
holders of at least 66 2/3% of the then outstanding shares of Series A Preferred
Stock agreeing that no such adjustment shall be made as the result of the
issuance of Additional Shares of Common Stock.
(iii) Issue of Securities Deemed Issue of Additional
Shares of Common Stock.
If the Corporation at any time or from time to time after the Series A
Original Issue Date shall issue any Options (excluding Options covered by
Subsection 4(d)(i)(D)(IV) above) or Convertible Securities or shall fix a record
date for the determination of holders of any class of securities entitled to
receive any such Options or Convertible Securities, then the maximum number of
shares of Common Stock (as set forth in the instrument relating thereto without
regard to any provision contained therein for a subsequent adjustment of such
number) issuable upon the exercise of such Options or, in the case of
Convertible Securities and Options therefor, the conversion or exchange of such
Convertible Securities, shall be deemed to be Additional Shares of Common Stock
issued as of the time of such issue or, in case such a record date shall have
been fixed, as of the close of business on such record date, provided that
Additional Shares of Common Stock shall not be deemed to have been issued unless
the consideration per share (determined pursuant to Subsection 4(d)(v) hereof)
of such Additional Shares of Common Stock would be less than the applicable
Series A Conversion Price in effect on the date of and immediately prior to such
issue, or such record date, as the case may be, and provided further that in any
such case in which Additional Shares of Common Stock are deemed to be issued:
(A) No further adjustment in the Series A Conversion
Price shall be made upon the subsequent issue of Convertible Securities or
shares of Common Stock upon the exercise of such Options or conversion or
exchange of such Convertible Securities;
(B) If such Options or Convertible Securities by their
terms provide, with the passage of time or otherwise, for any increase or
decrease in the consideration payable to the Corporation, upon the exercise,
conversion or exchange thereof, the Series A Conversion Price computed upon the
original issue thereof (or upon the occurrence of a record date with respect
thereto), and any subsequent adjustments based thereon, shall, upon any such
increase or decrease becoming effective, be recomputed to reflect such increase
or decrease insofar as it affects such Options or the rights of conversion or
exchange under such Convertible
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<PAGE> 14
Securities;
(C) Upon the expiration or termination of any such
unexercised Option, the Series A Conversion Price shall not be readjusted, but
the Additional Shares of Common Stock deemed issued as the result of the
original issue of such Option shall not be deemed issued for the purposes of any
subsequent adjustment of the Series A Conversion Price;
(D) In the event of any change in the number of shares
of Common Stock issuable upon the exercise, conversion or exchange of any such
Option or Convertible Security, including, but not limited to, a change
resulting from the anti-dilution provisions thereof, the Series A Conversion
Price then in effect shall forthwith be readjusted to such Series A Conversion
Price as would have obtained had the adjustment which was made upon the issuance
of such Option or Convertible Security not exercised or converted prior to such
change been made upon the basis of such change; and
(E) No readjustment pursuant to clause (B) or (D)
above shall have the effect of increasing the Series A Conversion Price to an
amount which exceeds the lower of (i) the Series A Conversion Price on the
original adjustment date, or (ii) the Series A Conversion Price that would have
resulted from any issuances of Additional Shares of Common Stock between the
original adjustment date and such readjustment date.
In the event the Corporation, after the Series A Original Issue Date,
amends the terms of any such Options or Convertible Securities (whether such
Options or Convertible Securities were outstanding on the Series A Original
Issue Date or were issued after the Series A Original Issue Date) to increase
the number of shares issuable thereunder or decrease the consideration to be
paid upon exercise or conversion thereof, then such Options or Convertible
Securities, as so amended, shall be deemed to have been issued after the Series
A Original Issue Date and the provisions of this Subsection 4(d)(iii) shall
apply.
(iv) Adjustment of Series A Conversion Price Upon
Issuance of Additional Shares of Common Stock.
In the event the Corporation shall at any time after the Series A
Original Issue Date issue Additional Shares of Common Stock (including
Additional Shares of Common Stock deemed to be issued pursuant to Subsection
4(d)(iii), but excluding shares issued as a stock split or combination as
provided in Subsection 4(e) or upon a dividend or distribution as provided in
Subsection 4(f)), without consideration or for a consideration per share less
than the applicable Series A Conversion Price in effect immediately prior to
such issue, then and in such event, such Series A Conversion Price
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shall be reduced, concurrently with such issue, to a price (calculated to the
nearest cent) determined by multiplying such Series A Conversion Price by a
fraction, (A) the numerator of which shall be (1) the number of shares of Common
Stock outstanding immediately prior to such issue plus (2) the number of shares
of Common Stock which the aggregate consideration received or to be received by
the Corporation for the total number of Additional Shares of Common Stock so
issued would purchase at such Series A Conversion Price; and (B) the denominator
of which shall be the number of shares of Common Stock outstanding immediately
prior to such issue plus the number of such Additional Shares of Common Stock so
issued; provided that, (i) for the purpose of this Subsection 4(d)(iv), all
shares of Common Stock issuable upon exercise or conversion of Convertible
Securities outstanding immediately prior to such issue shall be deemed to be
outstanding, and (ii) the number of shares of Common Stock deemed issuable upon
conversion of such outstanding Convertible Securities shall not give effect to
any adjustments to the conversion price or conversion rate of such Convertible
Securities resulting from the issuance of Additional Shares of Common Stock that
is the subject of this calculation.
(v) Determination of Consideration. For purposes of this
Subsection 4(d), the consideration received by the Corporation for the issue of
any Additional Shares of Common Stock shall be computed as follows:
(A) Cash and Property: Such consideration shall:
(I) insofar as it consists of cash, be computed
at the aggregate of cash received by the
Corporation, excluding amounts paid or
payable for accrued interest;
(II) insofar as it consists of property other
than cash, be computed at the fair market
value thereof at the time of such issue, as
determined in good faith by the Board of
Directors; and
(III) in the event Additional Shares of Common
Stock are issued together with other shares
or securities or other assets of the
Corporation for consideration which covers
both, be the proportion of such
consideration so received, computed as
provided in clauses (I) and (II) above, as
determined in good faith by the Board of
Directors.
(B) Options and Convertible Securities. The
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<PAGE> 16
consideration per share received by the Corporation for Additional Shares of
Common Stock deemed to have been issued pursuant to Subsection 4(d)(iii),
relating to Options and Convertible Securities, shall be determined by dividing
(x) the total amount, if any, received or receivable
by the Corporation as consideration for the issue of such Options or Convertible
Securities, plus the minimum aggregate amount of additional consideration (as
set forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such consideration) payable to
the Corporation upon the exercise of such Options or the conversion or exchange
of such Convertible Securities, or in the case of Options for Convertible
Securities, the exercise of such Options for Convertible Securities and the
conversion or exchange of such Convertible Securities, by
(y) the maximum number of shares of Common Stock (as
set forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such number) issuable upon the
exercise of such Options or the conversion or exchange of such Convertible
Securities.
(vi) Multiple Closing Dates. In the event the Corporation
shall issue on more than one date Additional Shares of Common Stock which are
comprised of shares of the same series or class of Preferred Stock, and such
issuance dates occur within a period of no more than 120 days, then, upon the
final such issuance, the Series A Conversion Price shall be adjusted to give
effect to all such issuances as if they occurred on the date of the final such
issuance (and without giving effect to any adjustments as a result of such prior
issuances within such period).
(e) Adjustment for Stock Splits and Combinations. If the
Corporation shall at any time or from time to time after the Series A Original
Issue Date effect a subdivision of the outstanding Common Stock, the Series A
Conversion Price then in effect immediately before that subdivision shall be
proportionately decreased. If the Corporation shall at any time or from time to
time after the Series A Original Issue Date combine the outstanding shares of
Common Stock, the Series A Conversion Price then in effect immediately before
the combination shall be proportionately increased. Any adjustment under this
paragraph shall become effective at the close of business on the date the
subdivision or combination becomes effective.
(f) Adjustment for Certain Dividends and Distributions. In the
event the Corporation at any time, or from time to time after the Series A
Original Issue Date shall make or issue, or fix a record date for the
determination of holders of Common Stock entitled to receive, a dividend or
other distribution payable in additional shares of Common Stock, then and in
each such event the Series A Conversion Price then in effect immediately before
such event shall be decreased as of the time of such issuance
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or, in the event such a record date shall have been fixed, as of the close of
business on such record date, by multiplying the Series A Conversion Price for
the Series A Preferred Stock then in effect by a fraction:
(1) the numerator of which shall be the total number of
shares of Common Stock issued and outstanding immediately prior
to the time of such issuance or the close of business on such
record date, and
(2) the denominator of which shall be the total number of
shares of Common Stock issued and outstanding immediately prior
to the time of such issuance or the close of business on such
record date plus the number of shares of Common Stock issuable
in payment of such dividend or distribution;
provided, however, if such record date shall have been fixed and such dividend
is not fully paid or if such distribution is not fully made on the date fixed
therefor, the Series A Conversion Price shall be recomputed accordingly as of
the close of business on such record date and thereafter the Series A Conversion
Price shall be adjusted pursuant to this paragraph as of the time of actual
payment of such dividends or distributions; and provided further, however, that
no such adjustment shall be made if the holders of Series A Preferred Stock
simultaneously receive (i) a dividend or other distribution of shares of Common
Stock in a number equal to the number of shares of Common Stock as they would
have received if all outstanding shares of Series A Preferred Stock had been
converted into Common Stock on the date of such event or (ii) a dividend or
other distribution of shares of Series A Preferred Stock which are convertible,
as of the date of such event, into such number of shares of Common Stock as is
equal to the number of additional shares of Common Stock being issued with
respect to each share of Common Stock in such dividend or distribution.
(g) Adjustments for Other Dividends and Distributions. In the
event the Corporation at any time or from time to time after the Series A
Original Issue Date shall make or issue, or fix a record date for the
determination of holders of Common Stock entitled to receive, a dividend or
other distribution payable in securities of the Corporation other than shares of
Common Stock, then and in each such event provision shall be made so that the
holders of the Series A Preferred Stock shall receive upon conversion thereof in
addition to the number of shares of Common Stock receivable thereupon, the
amount of securities of the Corporation that they would have received had the
Series A Preferred Stock been converted into Common Stock on the date of such
event and had they thereafter, during the period from the date of such event to
and including the conversion date, retained such securities receivable by them
as aforesaid during such period, giving application to all adjustments called
for during such period under this paragraph with respect to the rights of the
holders of the Series A Preferred Stock; and provided further, however, that no
such adjustment shall
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be made if the holders of Series A Preferred Stock simultaneously receive a
dividend or other distribution of such securities in an amount equal to the
amount of such securities as they would have received if all outstanding shares
of Series A Preferred Stock had been converted into Common Stock on the date of
such event.
(h) Adjustment for Reclassification, Exchange, or Substitution.
If the Common Stock issuable upon the conversion of the Series A Preferred Stock
shall be changed into the same or a different number of shares of any class or
classes of stock, whether by capital reorganization, reclassification, or
otherwise (other than a subdivision or combination of shares or stock dividend
provided for above, or a reorganization, merger, consolidation, or sale of
assets provided for below), then and in each such event the holder of each such
share of Series A Preferred Stock shall have the right thereafter to convert
such share into the kind and amount of shares of stock and other securities and
property receivable, upon such reorganization, reclassification, or other
change, by holders of the number of shares of Common Stock into which such
shares of Series A Preferred Stock might have been converted immediately prior
to such reorganization, reclassification, or change, all subject to further
adjustment as provided herein.
(i) Adjustment for Merger or Reorganization, etc. Subject to
the provisions of Section 2(c), in case of any consolidation or merger of the
Corporation with or into another corporation or the sale of all or substantially
all of the assets of the Corporation to another corporation each share of Series
A Preferred Stock shall thereafter be convertible (or shall be converted into a
security which shall be convertible) into the kind and amount of shares of stock
or other securities or property to which a holder of the number of shares of
Common Stock of the Corporation deliverable upon conversion of such Series A
Preferred Stock would have been entitled upon such consolidation, merger or
sale; and, in such case, appropriate adjustment (as determined in good faith by
the Board of Directors) shall be made in the application of the provisions in
this Section 4 set forth with respect to the rights and interest thereafter of
the holders of the Series A Preferred Stock, to the end that the provisions set
forth in this Section 4 (including provisions with respect to changes in and
other adjustments of the Series A Conversion Price) shall thereafter be
applicable, as nearly as reasonably may be, in relation to any shares of stock
or other property thereafter deliverable upon the conversion of the Series A
Preferred Stock.
(j) No Impairment. The Corporation will not, by amendment of
its Certificate of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms to be observed or performed hereunder by the Corporation, but
will at all times in good faith assist in the carrying out of all the provisions
of this Section 4 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion
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<PAGE> 19
Rights of the holders of the Series A Preferred Stock against impairment.
(k) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Series A Conversion Price pursuant to this
Section 4, the Corporation at its expense shall promptly compute such adjustment
or readjustment in accordance with the terms hereof and furnish to each holder
of Series A Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any holder of Series A Preferred Stock, furnish or cause to be furnished
to such holder a similar certificate setting forth (i) such adjustments and
readjustments, (ii) the Series A Conversion Price then in effect, and (iii) the
number of shares of Common Stock and the amount, if any, of other property which
then would be received upon the conversion of Series A Preferred Stock.
(l) Notice of Record Date. In the event:
(i) that the Corporation declares a dividend (or any
other distribution) on its Common Stock payable in
Common Stock or other securities of the Corporation;
(ii) that the Corporation subdivides or combines its
outstanding shares of Common Stock;
(iii) of any reclassification of the Common Stock of the
Corporation (other than a subdivision or combination
of its outstanding shares of Common Stock or a stock
dividend or stock distribution thereon), or of any
consolidation or merger of the Corporation into or
with another corporation, or of the sale of all or
substantially all of the assets of the Corporation;
or
(iv) of the involuntary or voluntary dissolution,
liquidation or winding up of the Corporation;
then the Corporation shall cause to be filed at its principal office or at the
office of the transfer agent of the Series A Preferred Stock, and shall cause to
be mailed to the holders of the Series A Preferred Stock at their last addresses
as shown on the records of the Corporation or such transfer agent, at least ten
days prior to the date specified in (A) below or twenty days before the date
specified in (B) below, a notice stating
(A) the record date of such dividend,
distribution, subdivision or combination,
or, if a record is not to be
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<PAGE> 20
taken, the date as of which the holders of
Common Stock of record to be entitled to
such dividend, distribution, subdivision or
combination are to be determined, or
(B) the date on which such reclassification,
consolidation, merger, sale, dissolution,
liquidation or winding up is expected to
become effective, and the date as of which
it is expected that holders of Common Stock
of record shall be entitled to exchange
their shares of Common Stock for securities
or other property deliverable upon such
reclassification, consolidation, merger,
sale, dissolution or winding up.
5. Mandatory Conversion.
(a) Upon the closing of the sale of shares of Common Stock, at a
price to the public of at least $12.30 per share (subject to appropriate
adjustment for stock splits, stock dividends, combinations and other similar
recapitalizations affecting such shares), in an underwritten public offering
pursuant to an effective registration statement under the Securities Act of
1933, as amended, resulting in at least $15,000,000 of gross proceeds to the
Corporation (the "Mandatory Conversion Date"), (i) all outstanding shares of
Series A Preferred Stock shall automatically be converted into shares of Common
Stock, at the then effective conversion rate and (ii) the number of authorized
shares of Preferred Stock shall be automatically reduced by the number of shares
of Preferred Stock that had been designated as Series A Preferred Stock, and all
provisions included under the caption "Series A Convertible Preferred Stock",
and all references to the Series A Preferred Stock, shall be deleted and shall
be of no further force or effect.
(b) All holders of record of shares of Series A Preferred Stock
shall be given written notice of the Mandatory Conversion Date and the place
designated for mandatory conversion of all such shares of Series A Preferred
Stock pursuant to this Section 5. Such notice need not be given in advance of
the occurrence of the Mandatory Conversion Date. Such notice shall be sent by
first class or registered mail, postage prepaid, to each record holder of Series
A Preferred Stock at such holder's address last shown on the records of the
transfer agent for the Series A Preferred Stock (or the records of the
Corporation, if it serves as its own transfer agent). Upon receipt of such
notice, each holder of shares of Series A Preferred Stock shall surrender his or
its certificate or certificates for all such shares to the Corporation at the
place designated in such notice, and shall thereafter receive certificates for
the number of shares of Common Stock to which such holder is entitled pursuant
to this Section 5. On the Mandatory Conversion Date, all outstanding shares of
Series A Preferred Stock shall be
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<PAGE> 21
deemed to have been converted into shares of Common Stock, which shall be deemed
to be outstanding of record, and all rights with respect to the Series A
Preferred Stock so converted, including the rights, if any, to receive notices
and vote (other than as a holder of Common Stock) will terminate, except only
the rights of the holders thereof, upon surrender of their certificate or
certificates therefor, to receive certificates for the number of shares of
Common Stock into which such Series A Preferred Stock has been converted, and
payment of any declared but unpaid dividends thereon. If so required by the
Corporation, certificates surrendered for conversion shall be endorsed or
accompanied by written instrument or instruments of transfer, in form
satisfactory to the Corporation, duly executed by the registered holder or by
his or its attorney duly authorized in writing. Within five (5) business days
after the Mandatory Conversion Date and the surrender of the certificate or
certificates for Series A Preferred Stock, the Corporation shall cause to be
issued and delivered to such holder, or on his or its written order, a
certificate or certificates for the number of full shares of Common Stock
issuable on such conversion in accordance with the provisions hereof and cash as
provided in Subsection 4(b) in respect of any fraction of a share of Common
Stock otherwise issuable upon such conversion.
(c) All certificates evidencing shares of Series A Preferred Stock
which are required to be surrendered for conversion in accordance with the
provisions hereof shall, from and after the Mandatory Conversion Date, be deemed
to have been retired and cancelled and the shares of Series A Preferred Stock
represented thereby converted into Common Stock for all purposes,
notwithstanding the failure of the holder or holders thereof to surrender such
certificates on or prior to such date. Such converted Series A Preferred Stock
may not be reissued, and the Corporation may thereafter take such appropriate
action (without the need for stockholder action) as may be necessary to reduce
the authorized number of shares of Series A Preferred Stock accordingly.
6. Redemption.
(a) The Corporation will, subject to the conditions set forth
below, on October 16, 2003 (the "Mandatory Redemption Date"), upon receipt not
less than 60 nor more than 120 days prior to the Mandatory Redemption Date of
written request(s) for redemption from holders of at least 33 1/3% of the shares
of Series A Preferred Stock then outstanding (an "Initial Redemption Request"),
redeem from each holder of shares of Series A Preferred Stock that requests
redemption pursuant to the Initial Redemption Request or pursuant to a
subsequent election made in accordance with Section 6(b) below (a "Requesting
Holder"), at a price equal to $8.00 per share, plus any dividends declared but
unpaid thereon, subject to appropriate adjustment in the event of any stock
dividend, stock split, combination or other similar recapitalization affecting
such shares (the "Mandatory Redemption Price"), the number of shares of Series A
Preferred Stock requested to be redeemed by each Requesting Holder.
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<PAGE> 22
(b) The Corporation will, subject to the conditions set forth
below, on the date 60 days after the death of Raymond V. Sozzi, Jr. at such time
as he is employed by the Corporation (the "Sozzi Redemption Date"), redeem from
each holder of shares of Series A Preferred Stock then outstanding that requests
redemption (a "Sozzi Requesting Holder") by written notice to the Company (a
"Sozzi Redemption Notice") prior to the Sozzi Redemption Date, all shares of
Series A Preferred Stock so requested to be redeemed at a price equal to the
Mandatory Redemption Price.
(c) The Corporation shall promptly provide notice of its receipt
of an Initial Redemption Request or Sozzi Redemption Request, specifying the
time, manner and place of redemption and the Mandatory Redemption Price (a
"Redemption Notice"), by first class or registered mail, postage prepaid, to
each holder of record of Series A Preferred Stock at the address for such holder
last shown on the records of the transfer agent therefor (or the records of the
Corporation, if it serves as its own transfer agent). Each holder of Series A
Preferred Stock may elect to become a Requesting Holder or Sozzi Requesting
Holder, as the case may be, on such Mandatory Redemption Date or Sozzi
Redemption Date, respectively, by so indicating in a written notice delivered by
hand or mailed to the Company, by first class or registered mail, postage
prepaid, prior to the Mandatory Redemption Date or Sozzi Redemption Date, as the
case may be. Except as provided in Section 6(d) below, each Requesting Holder or
Sozzi Requesting Holder, as the case may be, shall surrender to the Corporation
on the Mandatory Redemption Date or Sozzi Redemption Date, respectively, the
certificate(s) representing the shares to be redeemed on such date, in the
manner and at the place designated in the Redemption Notice. Thereupon, the
Mandatory Redemption Price shall be paid to the order of each such Requesting
Holder or Sozzi Requesting Holder, as the case may be, and each certificate
surrendered for redemption shall be cancelled.
(d) Notwithstanding anything to the contrary herein, the
Corporation shall be required to redeem shares of Series A Preferred Stock on
the Mandatory Redemption Date only to the extent that the funds required for
such redemption (i) exceed an amount equal to 20% of the Corporation's
consolidated revenues for the 12-month period ended as of the last day of the
fiscal quarter most recently ended prior to the Mandatory Redemption Date and
(ii) do not exceed (A) the amount of cash and cash equivalents of the
Corporation at such time and (B) the funds then legally available for
redemption; and any shares redeemed on the Mandatory Redemption Date should be
redeemed on a pro rata basis from Requesting Holders on the basis of the number
of shares requested to be redeemed by each Requesting Holder. To the extent that
any of the shares required to be redeemed on the Mandatory Redemption Date are
not redeemed as a result of the foregoing limitation (the "Unredeemed Shares"),
the Mandatory Redemption Price for the Unredeemed Shares shall increase at an
annual rate equal to the prime lending rate in effect as of the Mandatory
Redemption Date, as quoted in The Wall Street Journal, until paid to Requesting
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<PAGE> 23
Holders. At the end of each 12-month period following the Mandatory Redemption
Date, the Corporation shall use the then Available Funds (as defined below) to
redeem, at a price equal to the Mandatory Redemption Price (as increased
pursuant to the provisions of this Section 6(d)) as many of the Unredeemed
Shares as possible, ratably on the basis of the number of shares requested to be
redeemed by each Requesting Holder. "Available Funds" shall mean the lesser of:
(i) an amount equal to the "Free Cash Flow" (as defined below) of the
Corporation for the 12-month period ended as of the end of the fiscal quarter
most recently ended prior to the date on which the Available Funds are required
to be determined hereunder, and (ii) the funds then legally available for
redemption. "Free Cash Flow" shall mean 40% of the following: the Corporation's
earnings before depreciation and amortization but after taxes and interest and
after deducting an amount equal to capital expenditures, all as reflected on the
Corporation's balance sheet prepared in accordance with generally accepted
accounting principles consistently applied. The provisions of this Section 6(d)
shall not apply to a redemption pursuant to Section 6(b).
(e) Notwithstanding anything to the contrary herein, the
Corporation shall be required to redeem shares of Series A Preferred Stock on
the Sozzi Redemption Date only to the extent the funds required for such
redemption do not exceed the lesser of (i) an amount equal to insurance proceeds
received by the Corporation as a result of the death of Raymond V. Sozzi, Jr.
("Sozzi Insurance Proceeds"), or (ii) the funds then legally available for
redemption; and any shares redeemed on the Sozzi Redemption Date shall be
redeemed on a pro rata basis from Sozzi Requesting Holders on the basis of the
number of shares requested to be redeemed by each Sozzi Requesting Holder. To
the extent that any shares requested to be redeemed on the Sozzi Redemption Date
are not redeemed as a result of the foregoing limitation, at any time thereafter
when either the Corporation receives Sozzi Insurance Proceeds or additional
funds of the Corporation become legally available for the redemption of Series A
Preferred Stock, such funds will be used, at the end of the next succeeding
fiscal quarter, to redeem the maximum possible number of such shares of Series A
Preferred Stock ratably on the basis of the number of shares requested to be
redeemed by Sozzi Requesting Holders; provided, however, that the maximum
aggregate amount of the funds required to be paid to Sozzi Requesting Holders as
a result of a Sozzi Redemption Date shall not exceed the amount of Sozzi
Insurance Proceeds actually received by the Corporation.
(f) Except with respect to shares as to which the Corporation
fails to pay the Mandatory Redemption Price on the Mandatory Redemption Date or
Sozzi Redemption Date, as the case may be, all rights of the holder of each
share redeemed on such date as a stockholder of the Corporation by reason of the
ownership of such share will cease, except the right to receive the Mandatory
Redemption Price of such share, without interest, upon presentation and
surrender of the certificate representing such share, and such share will not
from and after such Mandatory Redemption Date or Sozzi Redemption Date, as the
case may be, be deemed to be outstanding.
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<PAGE> 24
(g) Any Series A Preferred Stock redeemed pursuant to this Section
6 will be cancelled and will not under any circumstances be reissued, sold or
transferred and the Corporation may from time to time take such appropriate
action as may be necessary to reduce the authorized Series A Preferred Stock
accordingly.
RESOLVED: That Article NINTH of the Certificate of Incorporation of the
Corporation be and hereby is deleted in its entirety and the following Article
NINTH is inserted in lieu thereof:
NINTH: To the fullest extent permitted by the General Corporation Law
of the State of Delaware, as currently in effect, a director of the Corporation
shall not be personally liable to the Corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director. If the General
Corporation Law of the State of Delaware is amended to authorize corporate
action further eliminating or limiting the personal liability of directors, then
the liability of a director of the Corporation shall be eliminated or limited to
the fullest extent permitted by the General Corporation Law of the State of
Delaware, as so amended. Any repeal or modification of this provision shall not
adversely affect any right or protection of a director of the Corporation
existing at the time of such repeal or modification.
RESOLVED: That Article TENTH of the Certificate of Incorporation of the
Corporation be and hereby is deleted in its entirety and the following Article
TENTH is inserted in lieu thereof:
TENTH: (a) Right to Indemnification. (i) Each person who was or is made
a party or is threatened to be made a party to or is involved in any action,
suit or proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding") or any appeal in such a proceeding or any inquiry
or investigation that could lead to such a proceeding, by reason of the fact
that he or she, or a person of whom he or she is the legal representative, is or
was a director or officer of the Corporation or is or was serving at the request
of the Corporation as a director, officer, employee or agent of another
corporation or a partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans, whether the basis of
such proceeding is alleged action in an official capacity as a director,
officer, employee or agent or in any other capacity while serving as a director,
officer, employee or agent, shall be indemnified and held harmless by the
Corporation to the fullest extent authorized by the General Corporation Law of
the State of Delaware, as the same exists or may hereafter be amended (but, in
the case of any such amendment, only to the extent that such amendment permits
the Corporation to provide broader indemnification rights than said law
permitted the Corporation to provide prior to such amendment), against all
expense, liability and loss (including attorneys' fees, judgments, fines, ERISA
excise taxes or penalties and amounts paid or to be paid in
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<PAGE> 25
settlement) reasonably incurred or suffered by such person in connection
therewith and such indemnification shall continue as to a person who has ceased
to be a director, officer, employee or agent and shall inure to the benefit of
his or her heirs, executors and administrators, provided, however, that except
as provided in paragraph (b) hereof, the Corporation shall indemnify any such
person seeking indemnification in connection with a proceeding (or part thereof)
initiated by such person only if such proceeding (or part thereof) was
authorized by the Board of Directors of the Corporation. The right to
indemnification conferred in this Article shall be a contract right based upon
an offer from the Corporation which shall be deemed to be accepted by such
person's service or continued service with the Corporation and shall include the
right to be paid by the Corporation the expenses incurred in defending any such
proceeding in advance of its final disposition; provided, however, that, if the
General Corporation Law of the State of Delaware requires, the payment of such
expenses incurred by a director or officer in his or her capacity as a director
or officer (and not in any other capacity in which service was or is rendered by
such person while a director or officer, including, without limitation, service
to an employee benefit plan) in advance of the final disposition of a
proceeding, shall be made only upon delivery to the Corporation of an
undertaking, by or on behalf of such director or officer, to repay all amounts
so advanced if it shall ultimately be determined that such director or officer
is not entitled to be indemnified under this Article or otherwise. The
Corporation may, by action of its Board of Directors, provide indemnification to
employees or agents of the Corporation with the same scope and effect as the
foregoing indemnification of directors and officers.
(b) Right of Claimant to Bring Suit. If a claim under paragraph (a) of
this Article is not paid in full by the Corporation within thirty days after a
written claim has been received by the Corporation, the claimant may at any time
thereafter bring suit against the Corporation to recover the unpaid amount of
the claim and, if successful in whole or in part, the claimant shall be entitled
to be paid also the expense of prosecuting such claim. It shall be a defense to
any such action (other than an action brought to enforce a claim for expenses
incurred in defending any proceeding in advance of its final disposition where
the required undertaking, if any is required, has been tendered to the
Corporation) that the claimant has not met the standards of conduct which make
it permissible under the General Corporation Law of the State of Delaware for
the Corporation to indemnify the claimant for the amount claimed, but the burden
of proving such defense shall be on the Corporation. Neither the failure of the
Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
General Corporation Law of the State of Delaware, nor an actual determination by
the Corporation (including its Board of Directors, independent legal counsel, or
its stockholders), that the claimant
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<PAGE> 26
has not met such applicable standard of conduct, shall be a defense to the
action or create a presumption that the claimant has not met the applicable
standard of conduct.
(c) Non-Exclusivity of Rights. The right to indemnification and the
payment of expenses incurred in defending a proceeding in advance of its final
disposition conferred in this Article shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute, provision of
the Certificate of Incorporation, by-law, agreement, vote of stockholders or
disinterested directors or otherwise.
(d) Insurance. The Corporation may maintain insurance, at its expense,
to protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or other
enterprise against any such expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the Delaware Corporation Law.
(e) Severability. If any subsection of this Article shall be deemed to
be invalid or ineffective in any proceedings, the remaining subsections hereof
shall not be affected and shall remain in full force and effect.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to be signed by its Chairman and Chief Executive Officer this 20th day
of October 1998.
STUDENT ADVANTAGE, INC.
By: /s/ Raymond V. Sozzi, Jr.
-------------------------------------
Chairman and
Chief Executive Officer
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<PAGE> 1
Exhibit 3.3
RESTATED BY-LAWS
OF
STUDENT ADVANTAGE, INC.
ARTICLE 1
OFFICES
SECTION 1. REGISTERED OFFICE. - The registered office shall be
established and maintained at c/o United Corporate Services, Inc., 15 East North
Street, Dover, Delaware 19901 and United Corporate Services, Inc. shall be the
registered agent of this corporation in charge thereof.
SECTION 2. OTHER OFFICES. - The corporation may have other offices,
either within or without the State of Delaware, at such place or places as the
Board of Directors may from time to time appoint or the business of the
corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. ANNUAL MEETINGS. - Annual meetings of stockholders for the
election of directors and for such other business as may be stated in the notice
of the meeting, shall be held at such place, either within or without the State
of Delaware, and at such time and date as the Board of Directors, by resolution,
shall determine and as set forth in the notice of meeting. In the event the
Board of Directors fails to so determine the time, date and place of meeting,
the annual meeting of stockholders shall be held at the registered office of the
corporation in Delaware.
If the date of the annual meeting shall fall upon a legal holiday, the
meeting shall be held on the next succeeding business day. At each annual
meeting, the stockholders entitled to vote shall elect a Board of Directors and
they may transact such other corporate business as shall be stated in the notice
of the meeting.
SECTION 2. OTHER MEETINGS. - Meetings of stockholders for any purpose
other than the election of directors may be held at such time and place, within
or without the State of Delaware, as shall be stated in the notice of the
meeting.
SECTION 3. VOTING. - Each stockholder entitled to vote in accordance
with the terms of the Certificate of Incorporation and in accordance with the
provisions of
<PAGE> 2
these By-Laws shall be entitled to one vote, in person or by proxy, for each
share of stock entitled to vote held by such stockholder, but no proxy shall be
voted after three years from its date unless such proxy provides for a longer
period. Upon the demand of any stockholder, the vote for directors and the vote
upon any question before the meeting, shall be by ballot. All elections for
directors shall be decided by plurality vote; all other questions shall be
decided by majority vote except as otherwise provided by the Certificate of
Incorporation, these By-Laws or the laws of the State of Delaware.
A complete list of the stockholders entitled to vote at the ensuing
election, arranged in alphabetical order, with the address of each, and the
number of shares held by each, shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least ten days prior to the meeting, either at a place
within the city where the meeting is to be held, which place shall be specified
in the notice of the meeting, or, if not so specified, at the place where the
meeting is to be held. The list shall also be produced and kept at the time and
place of the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
SECTION 4. QUORUM. - Except as otherwise required by law, by the
Certificate of Incorporation or by these By-Laws, the presence, in person or by
proxy, of stockholders holding a majority of the stock of the corporation
entitled to vote shall constitute a quorum at all meetings of the stockholders.
In case a quorum shall not be present at any meeting, a majority in interest of
the stockholders entitled to vote thereat, present in person or by proxy, shall
have power to adjourn the meeting from time to time, without notice other than
announcement at the meeting, until the requisite amount of stock entitled to
vote shall be present. At any such adjourned meeting at which the requisite
amount of stock entitled to vote shall be represented, any business may be
transacted which might have been transacted at the meeting as originally
noticed; but only those stockholders entitled to vote at the meeting as
originally noticed shall be entitled to vote at any adjournment or adjournments
thereof. If the adjournment is for more than thirty (30) days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote the meeting.
SECTION 5. SPECIAL MEETINGS. - Special meetings of the stockholders for
any purpose or purposes may be called by the Chief Executive Officer or any
officer designated by the Chief Executive Officer, or by resolution of the
directors.
SECTION 6. NOTICE OF MEETINGS. - Written notice, stating the place,
date and time of the meeting, and the general nature of the business to be
considered, shall be given to each stockholder entitled to vote thereat at his
address as it appears on the records of the corporation, not less than ten nor
more than fifty days before the date of the meeting. No business other than that
stated in the notice shall be transacted at any meeting without the unanimous
consent of all the stockholders entitled to vote thereat.
2
<PAGE> 3
SECTION 7. ACTION WITHOUT MEETING. - Unless otherwise provided by the
Certificate of Incorporation, any action required to be taken at any annual or
special meeting of stockholders, or any action which may be taken at any annual
or special meeting, may be taken without a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted. Prompt notice of the taking of the corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing.
ARTICLE III
DIRECTORS
SECTION 1. NUMBER AND TERM. - The number of directors constituting the
entire Board ("entire Board" as used in these By-Laws means the total number of
directors which the Corporation shall have if there were no vacancies) shall be
fixed initially at three (3) and may thereafter be increased or decreased from
time to time by the holders of a majority of the outstanding shares entitled to
vote. Notwithstanding anything contained in these By-Laws, this Section shall be
amended only by the affirmative vote of the holders of a majority of the
outstanding shares entitled to vote. Each director shall be at least eighteen
years of age. Each director shall be elected to hold office until the annual
meeting of shareholders next following this election and until his successor
shall have been elected and shall qualify, or until his earlier death,
resignation or removal.
SECTION 2. RESIGNATIONS. - Any director, member of a committee or other
officer may resign at any time. Such resignation shall be made in writing, and
shall take effect at the time specified therein, and if no time be specified, at
the time of its receipt by the Chief Executive Officer or Secretary. The
acceptance of a resignation shall not be necessary to make it effective.
SECTION 3. VACANCIES - If the office of any director, member of a
committee or other officer becomes vacant, the holders of a majority of all of
the shares of stock outstanding and entitled to vote, may appoint any qualified
person to fill such vacancy, who shall hold office for the unexpired term and
until his successor shall be duly chosen.
SECTION 4. REMOVAL. - Any director or directors may be removed either
for or without cause at any time by the affirmative vote of the holders of a
majority of all the shares of stock outstanding and entitled to vote, at a
special meeting of the stockholders called for the purpose and, the vacancies
thus created may be filled, at the meeting held for the purpose of removal, by
the affirmative vote of a majority in interest of the stockholders entitled to
vote.
3
<PAGE> 4
SECTION 5. POWERS. - The Board of Directors shall exercise all of the
powers of the corporation except such as are by law, or by the Certificate of
Incorporation of the corporation or by these By-Laws conferred upon or reserved
to the stockholders.
SECTION 6. COMMITTEES. - The Board of Directors may, by resolution or
resolutions passed by a majority of the whole board, designate one or more
committees, each committee to consist of two or more of the directors of the
corporation. The board may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. In the absence or disqualification of any member or
such committee or committees, the member or members thereof present at any such
meeting and not disqualified from voting, whether or not he or they constitute a
quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in the place of any such absent or disqualified member.
Any such committee, to the extent provided in the resolution of the
Board of Directors, or in these By-Laws, shall have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and affairs of the corporation, and may authorize the seal of the corporation to
be affixed to all papers which may require it; but no such committee shall have
the power of authority in reference to amending the Certificate of
Incorporation, adopting an agreement of merger or consolidation, recommending to
the stockholders the sale, lease or exchange of all or substantially all of the
corporation's property and assets, recommending to the stockholders a
dissolution of the corporation or a revocation of a dissolution, or amending the
By-Laws of the corporation; and unless the resolution, these By-Laws, or the
Certificate of Incorporation expressly so provide, no such committee shall have
the power or authority to declare a dividend or to authorize the issuance of
stock.
SECTION 7. MEETINGS. - The newly elected Board of Directors may hold
their first meeting for the purpose of organization and the transaction of
business, if a quorum be present, immediately after the annual meeting of the
stockholders; or the time and place of such meeting may be fixed by consent, in
writing, of all the directors.
Unless restricted by the Certificate of Incorporation or in these
By-Laws, members of the Board of Directors or any committee designated by such
Board may participate in a meeting of such Board or committee by means of
conference telephone or similar communications equipment allowing all persons
participating in the meeting to hear each other at the same time. Participation
by such means shall constitute presence in person at such meeting.
Regular meetings of the Board of Directors may be scheduled by a
resolution adopted by the Board. The Chairman of the Board or the Chief
Executive Officer may call, and if requested by any two directors, must call a
special meeting of the Board and give five days' notice by mail, or two days'
notice personally or by telegraph, cable or electronic mail to each
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director. The Board of Directors may hold an annual meeting, without notice,
immediately after the annual meeting of shareholders.
SECTION 8. QUORUM. - A majority of the whole board shall constitute a
quorum for the transaction of business. If at any meeting of the board there
shall be less than a quorum present, a majority of those present may adjourn the
meeting from time to time until a quorum is obtained, and no further notice
thereof need be given other than by announcement at the meeting which shall be
so adjourned.
SECTION 9. COMPENSATION. - Directors shall not receive any stated
salary for their services as directors or as members of committees, but by
resolution of the board a fixed fee and expenses of attendance may be allowed
for attendance at each meeting. Nothing herein contained shall be construed to
preclude any director from serving the corporation in any other capacity as an
officer, agent or otherwise, and receiving compensation therefor.
SECTION 10. ACTION WITHOUT MEETING. - Any action required or permitted
to be taken at any meeting of the Board of Directors, or of any committee
thereof, may be taken without a meeting, if prior to such action a written
consent thereto is signed by all members of the board, or of such committee as
the case may be, and such written consent is filed with the minutes of
proceedings of the board or committee.
ARTICLE IV
OFFICERS
SECTION 1. OFFICERS. - The officers of the corporation shall be a Chief
Executive Officer, a Chairman, a President, a Chief Financial Officer and a
Secretary, all of whom shall be elected by the Board of Directors and who shall
hold office until their successors are elected and qualified. In addition, the
Board of Directors may elect one or more Vice-Presidents and such Assistant
Secretaries and Assistant Treasurers as they may deem proper. None of the
officers of the corporation need be directors. More than two offices may be hold
by the same person.
SECTION 2. OTHER OFFICERS AND AGENTS. - The Board of Directors may
appoint such other officers and agents as it may deem advisable, who shall hold
their offices for such terms and shall exercise such powers and perform such
duties as shall be determined from time to time by the Board of Directors.
SECTION 3. CHAIRMAN. - The Chairman shall be the Chairman of the Board
of Directors, shall preside at all meetings of the Board of Directors and he
shall have and perform such other duties as from time to time may be assigned to
him by the Board of Directors.
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SECTION 4. CHIEF EXECUTIVE OFFICER. - The Chief Executive Officer shall
have the general powers and duties of supervision and management usually vested
in the office of Chief Executive Officer of a corporation. He shall preside at
all meetings of the stockholders if present thereat, and in the absence or
non-election of the Chairman of the Board of Directors, at all meetings of the
Board of Directors, and shall have general supervision, direction and control of
the business of the corporation. Except as the Board of Directors shall
authorize the execution thereof in some other manner, he shall execute bonds,
mortgages and other contracts in behalf of the corporation, and shall cause the
seal to be affixed to any instrument requiring it and when so affixed the seal
shall be attested by the signature of the Secretary or the Treasurer or
Assistant Secretary or an Assistant Treasurer. In addition, in the absence of a
President he shall have all of powers usually vested in a President.
SECTION 5. PRESIDENT. - The President shall have the general powers and
duties of supervision and management usually vested in the office of President
of a corporation. Except as the Board of Directors shall authorize the execution
thereof in some other manner, he shall execute bonds, mortgages and other
contracts in behalf of the corporation, and shall cause the seal to be affixed
to any instrument requiring it and when so affixed the seal shall be attested by
the signature of the Secretary or the Treasurer or Assistant Secretary or an
Assistant Treasurer.
SECTION 6. VICE-PRESIDENT. - Each Vice-President shall have such powers
and shall perform such duties as shall be assigned to him by the directors.
SECTION 7. CHIEF FINANCIAL OFFICER. - The Chief Financial Officer shall
have the custody of the corporate funds and securities and shall keep full and
accurate account of receipts and disbursements in books belonging to the
corporation. He shall deposit all moneys and other valuables in the name and to
the credit of the corporation in such depositaries as may be designated by the
Chief Executive Officer or the Board of Directors.
The Chief Financial Officer shall disburse the funds of the corporation
as may be ordered by the Board of Directors, or the Chief Executive Officer,
taking proper vouchers for such disbursements. He shall render to the Chief
Executive Officer and the Board of Directors at the regular meetings of the
Board of Directors, or whenever they may request it, an account of all his
transactions as Chief Financial Officer and of the financial condition of the
corporation. If required by the Chief Executive Officer or the Board of
Directors, he shall give the corporation a bond for the faithful discharge of
his duties in such amount and with such surety as the board shall prescribe.
SECTION 8. SECRETARY. - The Secretary shall give, or cause to be given,
notice of all meetings of stockholders and directors, and all other notices
required by the law or by these By-Laws, and in case of his absence or refusal
or neglect so to do, any such notice may be given by any person thereunto
directed by the President, or by the directors, or stockholders,
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upon whose requisition the meeting is called as provided in these By-Laws. He
shall record all the proceedings of the meetings of the corporation and of the
directors in a book to be kept for that purpose, and shall perform such other
duties as may be assigned to him by the directors or the Chief Executive Officer
or any officer designated by the Chief Executive Officer. He shall have the
custody of the seal of the corporation and shall affix the same to all
instruments requiring it, when authorized by the directors or the Chief
Executive Officer or any officer designated by the Chief Executive Officer, and
attest the same.
SECTION 9. ASSISTANT TREASURERS AND ASSISTANT SECRETARIES. - Assistant
Treasurers and Assistant Secretaries, if any, shall be elected and shall have
such powers and shall perform such duties as shall be assigned to them,
respectively, by the directors.
ARTICLE V
MISCELLANEOUS
SECTION 1. CERTIFICATES OF STOCK. - A certificate of stock, signed by
the Chief Executive Officer or any officer designated by the Chief Executive
Officer, and the Treasurer or an Assistant Treasurer, or Secretary or Assistant
Secretary, shall be issued to each stockholder certifying the number of shares
owned by him in the corporation. When such certificates are countersigned (1) by
a transfer agent other than the corporation or its employee, or, (2) by a
registrar other than the corporation or its employee, the signatures of such
officers may be facsimiles.
SECTION 2. LOST CERTIFICATES. - A new certificate of stock may be
issued in the place of any certificate theretofore issued by the corporation,
alleged to have been lost or destroyed, and the directors may, in their
discretion, require the owner of the lost or destroyed certificate, or his legal
representatives, to give the corporation a bond, in such sum as they may direct,
not exceeding double the value of the stock, to indemnify the corporation
against any claim that may be made against it on account of the alleged loss of
any such certificate, or the issuance of any such new certificate.
SECTION 3. TRANSFER OF SHARES. - The shares of stock of the corporation
shall be transferable only upon its books by the holders thereof in person or by
their duly authorized attorneys or legal representatives, and upon such transfer
the old certificate shall be surrendered to the corporation by the delivery
thereof to the person in charge of the stock and transfer books and ledgers, or
to such other person as the directors may designate, by whom they shall be
canceled, and new certificates shall thereupon be issued. A record shall be made
of each transfer and whenever a transfer shall be made for collateral security,
and not absolutely, it shall be so expressed in the entry of the transfer.
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SECTION 4. STOCKHOLDERS RECORD DATE. - (a) In order that the
corporation may determine the stockholders entitled to notice of or to vote at
any meeting of stockholders or any adjournment thereof, the Board of Directors
may fix a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted by the Board of Directors, and
which record date shall not be more than sixty (60) days nor less than ten (10)
days before the date of such meeting. If no record is fixed by the Board of
Directors, the record date for determining stockholders entitled to notice of or
to vote at a meeting of stockholders shall be at the close of business on the
day next preceding the day on which notice is given, or, if notice is waived, at
the close of business on the day next preceding the day on which the meeting
held. A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
providing, however, that the Board of Directors may fix a new record date for
the adjourned meeting.
(b) In order that the corporation may determine the
stockholders entitled to consent to corporate action in writing without a
meeting, the Board of Directors may fix a record date which record date shall
not precede the date upon which the resolution fixing the record date is adopted
by the Board of Directors, and which date shall not be more than ten (10) days
after the date upon which the resolution fixing the record date is adopted by
the Board of Directors. If no record date has been fixed by the Board of
Directors, the record date for determining stockholders entitled to consent to
corporate action in writing without a meeting, when no prior action by the Board
of Directors is required by this chapter, shall be the first date on which a
signed written consent setting forth the action taken or proposed to be taken is
delivered to the corporation by delivery to its registered office in this State,
its principal place of business, or an officer or agent of the corporation
having custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to a corporation's registered office shall be by hand or
by certified or registered mail, return receipt requested. If no record date has
been fixed by the Board of Directors and prior action by the Board of Directors
is required by this chapter, the record date for determining stockholders
entitled to consent to corporate action in writing without a meeting shall be at
the close of business on the day on which the Board of Directors adopts the
resolution taking such prior action.
(c) In order that the corporation may determine the
stockholders entitled to receive payment of any dividend or other distribution
or allotment of any rights or the stockholders entitled to exercise any rights
in respect of any change, conversion or exchange of stock, or for the purpose of
any other lawful action, the Board of Directors may fix a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted, and which record date shall be not more than sixty (60)
days prior to such action. If no record date is fixed, the record date for
determining stockholders for any such purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating
thereto.
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SECTION 5. DIVIDENDS. - Subject to the provisions of the Certificate of
Incorporation, the Board of Directors may out of funds legally available
therefor at any regular or special meeting, declare dividends upon the capital
stock of the corporation as and when they deem expedient. Before declaring any
dividend there may be set apart out of any funds of the corporation available
for dividends, such sum or sums as the directors from time to time in their
discretion deem proper for working capital or as a reserve fund to meet
contingencies or for equalizing dividends or for such other purposes as the
directors shall deem conducive to the interests of the corporation.
SECTION 6. SEAL. - The corporate seal shall be circular in form and
shall contain the name of the corporation, the year of its creation and the
words "Corporate Seal, Delaware, 1996". Said seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.
SECTION 7. FISCAL YEAR. - The fiscal year of the corporation shall be
determined by resolution of the Board of Directors.
SECTION 8. CHECKS. - All checks, drafts or other orders for the payment
of money, notes or other evidences of indebtedness issued in the name of the
corporation shall be signed by such officer or officers, agent or agents of the
corporation, and in such manner as shall be determined from time to time by
resolution of the Board of Directors.
SECTION 9. NOTICE AND WAIVER OF NOTICE. - Whenever any notice is
required by these By-Laws to be given, personal notice is not meant unless
expressly so stated, and any notice so required shall be deemed to be sufficient
if given by depositing the same in the United States mail, postage prepaid,
addressed to the person entitled thereto at his address as it appears on the
records of the corporation, and such notice shall be deemed to have been given
on the day of such mailing. Stockholders not entitled to vote shall not be
entitled to receive notice of any meetings except as otherwise provided by
Statute.
Whenever any notice whatever is required to be given under the
provisions of any law, or under the provisions of the Certificate of
Incorporation of the corporation of these By-Laws, a waiver thereof in writing,
signed by the person or persons entitled to said notice, whether before or after
the time stated therein, shall be deemed equivalent thereto.
ARTICLE VI
AMENDMENTS
These By-Laws may be altered or repealed and By-Laws may be made at any
annual meeting of the stockholders or at any special meeting thereof if notice
of the proposed alteration or repeal of By-Law or By-Laws to be made be
contained in the notice of such special meeting, by the affirmative vote of a
majority of the stock issued and outstanding and entitled to vote thereat, or by
the affirmative vote of a majority of the
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Board of Directors, at any regular meeting of the Board of Directors, or at any
special meeting of the Board of Directors, if notice of the proposed alteration
or repeal of By-Law or By-Laws to be made, be contained in the notice of such
special meeting.
ARTICLE VII
INDEMNIFICATION
The corporation shall indemnify to the fullest extent permitted by law
each person that such law grants the corporation the power to indemnify. To the
fullest extent permitted by Delaware law, no director shall be liable to the
corporation or any of its stockholders for monetary damages for breach of
fiduciary duty as a director.
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Exhibit 10.1
STUDENT ADVANTAGE, INC.
1998 STOCK INCENTIVE PLAN
Adopted by the Board of Directors on December 10, 1998
1. PURPOSE
The purpose of this 1998 Stock Incentive Plan (the "Plan") of Student
Advantage, Inc., a Delaware corporation (the "Company"), is to advance the
interests of the Company's stockholders by enhancing the Company's ability to
attract, retain and motivate persons who make (or are expected to make)
important contributions to the Company by providing such persons with equity
ownership opportunities and performance-based incentives and thereby better
aligning the interests of such persons with those of the Company's stockholders.
Except where the context otherwise requires, the term "Company" shall include
any of the Company's present or future subsidiary corporations as defined in
Section 424(f) of the Internal Revenue Code of 1986, as amended, and any
regulations promulgated thereunder (the "Code") and any other business venture
(including, without limitation, joint venture or limited liability company) in
which the Company has a significant interest, as determined by the Board of
Directors of the Company (the "Board").
2. ELIGIBILITY
All of the Company's employees, officers, directors, consultants and
advisors (and any individuals who have accepted an offer for employment) are
eligible to be granted options, restricted stock awards, or other stock-based
awards (each, an "Award") under the Plan. Each person who has been granted an
Award under the Plan shall be deemed a "Participant".
3. ADMINISTRATION, DELEGATION
a. ADMINISTRATION BY BOARD OF DIRECTORS. The Plan will be
administered by the Board. The Board shall have authority to grant Awards and to
adopt, amend and repeal such administrative rules, guidelines and practices
relating to the Plan as it shall deem advisable. The Board may correct any
defect, supply any omission or reconcile any inconsistency in the Plan or any
Award in the manner and to the extent it shall deem expedient to carry the Plan
into effect and it shall be the sole and final judge of such expediency. All
decisions by the Board shall be made in the Board's sole discretion and shall be
final and binding on all persons having or claiming any interest in the Plan or
in any Award. No director or person acting pursuant to the authority
<PAGE> 2
delegated by the Board shall be liable for any action or determination relating
to or under the Plan made in good faith.
b. DELEGATION TO EXECUTIVE OFFICERS. To the extent permitted by
applicable law, the Board may delegate to one or more executive officers of the
Company the power to make Awards and exercise such other powers under the Plan
as the Board may determine, provided that the Board shall fix the maximum number
of shares subject to Awards and the maximum number of shares for any one
Participant to be made by such executive officers.
c. APPOINTMENT OF COMMITTEES. To the extent permitted by
applicable law, the Board may delegate any or all of its powers under the Plan
to one or more committees or subcommittees of the Board (a "Committee"). All
references in the Plan to the "Board" shall mean the Board or a Committee of the
Board or the executive officer referred to in Section 3(b) to the extent that
the Board's powers or authority under the Plan have been delegated to such
Committee or executive officer.
4. STOCK AVAILABLE FOR AWARDS
a. NUMBER OF SHARES. Subject to adjustment under Section 8,
Awards may be made under the Plan for up to 1,400,000 shares of common stock,
$.01 par value per share, of the Company (the "Common Stock"), minus such number
of shares of Common Stock subject to Awards (not to exceed 100,000) as may have
been granted and are then outstanding or, have been exercised and not
repurchased, under the Company's 1998 California Stock Incentive Plan. If any
Award expires or is terminated, surrendered or canceled without having been
fully exercised or is forfeited or repurchased in whole or in part or results in
any Common Stock being repurchased or not being issued, the unused Common Stock
covered by such Award shall again be available for the grant of Awards under the
Plan, subject, however, in the case of Incentive Stock Options (as hereinafter
defined), to any limitation required under the Code. Shares issued under the
Plan may consist in whole or in part of authorized but unissued shares or
treasury shares.
b. PER-PARTICIPANT LIMIT. Subject to adjustment under Section 8,
for Awards granted after the Common Stock is registered under the Securities
Exchange Act of 1934 (the "Exchange Act"), the maximum number of shares of
Common Stock with respect to which an Award may be granted to any Participant
under the Plan shall be 1,000,000 per calendar year. The per-Participant limit
described in this Section 4(b) shall be construed and applied consistently with
Section 162(m) of the Code.
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5. STOCK OPTIONS
a. GENERAL. The Board may grant options to purchase Common Stock
(each, an "Option") and determine the number of shares of Common Stock to be
covered by each Option, the exercise price of each Option and the conditions and
limitations applicable to the exercise of each Option, including conditions
relating to applicable federal or state securities laws, as it considers
necessary or advisable. An Option which is not intended to be an Incentive Stock
Option (as hereinafter defined) shall be designated a "Nonstatutory Stock
Option".
b. INCENTIVE STOCK OPTIONS. An Option that the Board intends to
be an "incentive stock option" as defined in Section 422 of the Code (an
"Incentive Stock Option") shall only be granted to employees of the Company and
shall be subject to and shall be construed consistently with the requirements of
Section 422 of the Code. The Company shall have no liability to a Participant,
or any other party, if an Option (or any part thereof) which is intended to be
an Incentive Stock Option is not an Incentive Stock Option.
c. EXERCISE PRICE. The Board shall establish the exercise price
at the time each Option is granted and specify it in the applicable option
agreement.
d. DURATION OF OPTIONS. Each Option shall be exercisable at such
times and subject to such terms and conditions, including without limitation
vesting provisions, as the Board may specify in the applicable option agreement.
e. EXERCISE OF OPTION. Options may be exercised by delivery to
the Company of a written notice of exercise signed by the proper person or by
any other form of notice (including electronic notice) approved by the Board
together with payment in full as specified in Section 5(f) for the number of
shares for which the Option is exercised.
f. PAYMENT UPON EXERCISE. Common Stock purchased upon the
exercise of an Option granted under the Plan shall be paid for as follows:
(1) in cash or by check, payable to the order of the
Company;
(2) except as the Board may, in its sole discretion,
otherwise provide in an option agreement, by (i) delivery of an irrevocable and
unconditional undertaking by a creditworthy broker to deliver promptly to the
Company sufficient funds to pay the exercise price or (ii) delivery by the
Participant to the Company of a copy of irrevocable and unconditional
instructions to a creditworthy broker to deliver promptly to the Company cash or
a check sufficient to pay the exercise price;
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(3) when the Common Stock is registered under the
Exchange Act, by delivery of shares of Common Stock owned by the Participant
valued at their fair market value as determined by (or in a manner approved by)
the Board in good faith ("Fair Market Value"), which Common Stock was owned by
the Participant at least six months prior to such delivery;
(4) to the extent permitted by the Board, in its sole
discretion by (i) delivery of a promissory note of the Participant to the
Company on terms determined by the Board, or (ii) payment of such other lawful
consideration as the Board may determine; or
(5) by any combination of the above permitted forms of
payment.
6. RESTRICTED STOCK
a. GRANTS. The Board may grant Awards entitling recipients to
acquire shares of Common Stock, subject to the right of the Company to
repurchase all or part of such shares at their issue price or other stated or
formula price (or to require forfeiture of such shares if issued at no cost)
from the recipient in the event that conditions specified by the Board in the
applicable Award are not satisfied prior to the end of the applicable
restriction period or periods established by the Board for such Award (each, a
"Restricted Stock Award").
b. TERMS AND CONDITIONS. The Board shall determine the terms and
conditions of any such Restricted Stock Award, including the conditions for
repurchase (or forfeiture) and the issue price, if any. Any stock certificates
issued in respect of a Restricted Stock Award shall be registered in the name of
the Participant and, unless otherwise determined by the Board, deposited by the
Participant, together with a stock power endorsed in blank, with the Company (or
its designee). At the expiration of the applicable restriction periods, the
Company (or such designee) shall deliver the certificates no longer subject to
such restrictions to the Participant or if the Participant has died, to the
beneficiary designated, in a manner determined by the Board, by a Participant to
receive amounts due or exercise rights of the Participant in the event of the
Participant's death (the "Designated Beneficiary"). In the absence of an
effective designation by a Participant, Designated Beneficiary shall mean the
Participant's estate.
7. OTHER STOCK-BASED AWARDS
The Board shall have the right to grant other Awards based upon the
Common Stock having such terms and conditions as the Board may determine,
including the grant of shares based upon certain conditions, the grant of
securities convertible into Common Stock and the grant of stock appreciation
rights.
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8. ADJUSTMENTS FOR CHANGES IN COMMON STOCK AND CERTAIN OTHER EVENTS
a. CHANGES IN CAPITALIZATION. In the event of any stock split,
reverse stock split, stock dividend, recapitalization, combination of shares,
reclassification of shares, spin-off or other similar change in capitalization
or event, or any distribution to holders of Common Stock other than a normal
cash dividend, (i) the number and class of securities available under this Plan,
(ii) the per-Participant limit set forth in Section 4(b), (iii) the number and
class of securities and exercise price per share subject to each outstanding
Option, (iv) the repurchase price per share subject to each outstanding
Restricted Stock Award, and (v) the terms of each other outstanding Award shall
be appropriately adjusted by the Company (or substituted Awards may be made, if
applicable) to the extent the Board shall determine, in good faith, that such an
adjustment (or substitution) is necessary and appropriate. If this Section 8(a)
applies and Section 8(c) also applies to any event, Section 8(c) shall be
applicable to such event, and this Section 8(a) shall not be applicable.
b. LIQUIDATION OR DISSOLUTION. In the event of a proposed
liquidation or dissolution of the Company, the Board shall upon written notice
to the Participants provide that all then unexercised and/or unvested Options
will (i) become exercisable and vested in full as of a specified time at least
10 business days prior to the effective date of such liquidation or dissolution
and (ii) terminate effective upon such liquidation or dissolution, except to the
extent exercised before such effective date. The Board may specify the effect of
a liquidation or dissolution on any Restricted Stock Award or other Award
granted under the Plan at the time of the grant of such Award.
c. ACQUISITION EVENTS
(1) DEFINITION. An "Acquisition Event" shall mean: (a)
any merger or consolidation of the Company with or into another entity as a
result of which the Common Stock is converted into or exchanged for the right to
receive cash, securities or other property or (b) any exchange of shares of the
Company for cash, securities or other property pursuant to a statutory share
exchange transaction.
(2) CONSEQUENCES OF AN ACQUISITION EVENT ON OPTIONS. Upon
the occurrence of an Acquisition Event, or the execution by the Company of any
agreement with respect to an Acquisition Event, the Board shall provide that all
outstanding Options shall be assumed, or equivalent options shall be
substituted, by the acquiring or succeeding corporation (or an affiliate
thereof). For purposes hereof, an Option shall be considered to be assumed if,
following consummation of the Acquisition Event, the Option confers the right to
purchase, for each share of Common Stock subject to the Option immediately prior
to the consummation of the Acquisition Event, the consideration (whether cash,
securities or other property) received as a result of the Acquisition Event by
holders of Common Stock for each share of Common Stock held
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immediately prior to the consummation of the Acquisition Event (and if holders
were offered a choice of consideration, the type of consideration chosen by the
holders of a majority of the outstanding shares of Common Stock); provided,
however, that if the consideration received as a result of the Acquisition Event
is not solely common stock of the acquiring or succeeding corporation (or an
affiliate thereof), the Company may, with the consent of the acquiring or
succeeding corporation, provide for the consideration to be received upon the
exercise of Options to consist solely of common stock of the acquiring or
succeeding corporation (or an affiliate thereof) equivalent in fair market value
to the per share consideration received by holders of outstanding shares of
Common Stock as a result of the Acquisition Event.
Notwithstanding the foregoing, if the acquiring or succeeding
corporation (or an affiliate thereof) does not agree to assume, or substitute
for, such Options, then the Board shall, upon written notice to the
Participants, provide that all then unexercised and/or unvested Options will
become exercisable and vested in full as of a specified time prior to the
Acquisition Event and will terminate immediately prior to the consummation of
such Acquisition Event, except to the extent exercised by the Participants
before the consummation of such Acquisition Event; provided, however, that in
the event of an Acquisition Event under the terms of which holders of Common
Stock will receive upon consummation thereof a cash payment for each share of
Common Stock surrendered pursuant to such Acquisition Event (the "Acquisition
Price"), then the Board may instead provide that all outstanding Options shall
terminate upon consummation of such Acquisition Event and that each Participant
shall receive, in exchange therefor, a cash payment equal to the amount (if any)
by which (A) the Acquisition Price multiplied by the number of shares of Common
Stock subject to such outstanding Options (whether or not then exercisable or
vested), exceeds (B) the aggregate exercise price of such Options.
(3) CONSEQUENCES OF AN ACQUISITION EVENT ON RESTRICTED
STOCK AWARDS. Upon the occurrence of an Acquisition Event, the repurchase and
other rights of the Company under each outstanding Restricted Stock Award,
including without limitation, restricted stock issued upon the exercise of
unvested Options, shall inure to the benefit of the Company's successor and
shall apply to the cash, securities or other property which the Common Stock was
converted into or exchanged for pursuant to such Acquisition Event in the same
manner and to the same extent as they applied to the Common Stock subject to
such Restricted Stock Award.
(4) CONSEQUENCES OF AN ACQUISITION EVENT ON OTHER AWARDS.
The Board shall specify the effect of an Acquisition Event on any other Award
granted under the Plan at the time of the grant of such Award.
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9. GENERAL PROVISIONS APPLICABLE TO AWARDS
a. TRANSFERABILITY OF AWARDS. Except as the Board may otherwise
determine or provide in an Award, Awards shall not be sold, assigned,
transferred, pledged or otherwise encumbered by the person to whom they are
granted, either voluntarily or by operation of law, except by will or the laws
of descent and distribution, and, during the life of the Participant, shall be
exercisable only by the Participant. References to a Participant, to the extent
relevant in the context, shall include references to authorized transferees.
b. DOCUMENTATION. Each Award shall be evidenced by a written
instrument in such form as the Board shall determine. Each Award may contain
terms and conditions in addition to those set forth in the Plan, including
without limitation, provisions regarding the effect of a change in control of
the Company.
c. BOARD DISCRETION. Except as otherwise provided by the Plan,
each Award may be made alone or in addition or in relation to any other Award.
The terms of each Award need not be identical, and the Board need not treat
Participants uniformly.
d. TERMINATION OF STATUS. The Board shall determine the effect on
an Award of the disability, death, retirement, authorized leave of absence or
other change in the employment or other status of a Participant and the extent
to which, and the period during which, the Participant, the Participant's legal
representative, conservator, guardian or Designated Beneficiary may exercise
rights under the Award.
e. WITHHOLDING. Each Participant shall pay to the Company, or
make provision satisfactory to the Board for payment of, any taxes required by
law to be withheld in connection with Awards to such Participant no later than
the date of the event creating the tax liability. Except as the Board may
otherwise provide in an Award, when the Common Stock is registered under the
Exchange Act, Participants may satisfy such tax obligations in whole or in part
by delivery of shares of Common Stock, including shares retained from the Award
creating the tax obligation, valued at their Fair Market Value. The Company may,
to the extent permitted by law, deduct any such tax obligations from any payment
of any kind otherwise due to a Participant.
f. AMENDMENT OF AWARD. The Board may amend, modify or terminate
any outstanding Award, including but not limited to, substituting therefor
another Award of the same or a different type, changing the date of exercise or
realization, and converting an Incentive Stock Option to a Nonstatutory Stock
Option, provided that the Participant's consent to such action shall be required
unless the Board determines that the action, taking into account any related
action, would not materially and adversely affect the Participant.
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<PAGE> 8
g. CONDITIONS ON DELIVERY OF STOCK. The Company will not be
obligated to deliver any shares of Common Stock pursuant to the Plan or to
remove restrictions from shares previously delivered under the Plan until (i)
all conditions of the Award have been met or removed to the satisfaction of the
Company, (ii) in the opinion of the Company's counsel, all other legal matters
in connection with the issuance and delivery of such shares have been satisfied,
including any applicable securities laws and any applicable stock exchange or
stock market rules and regulations, and (iii) the Participant has executed and
delivered to the Company such representations or agreements as the Company may
consider appropriate to satisfy the requirements of any applicable laws, rules
or regulations.
h. ACCELERATION. The Board may at any time provide that any
Options shall become immediately exercisable and/or vested in full or in part,
that any Restricted Stock Awards, including without limitation, restricted stock
issued upon the exercise of unvested Options, shall be free of restrictions in
full or in part or that any other Awards may become exercisable and/or vested in
full or in part or free of some or all restrictions or conditions, or otherwise
realizable in full or in part, as the case may be.
10. MISCELLANEOUS
a. NO RIGHT TO EMPLOYMENT OR OTHER STATUS. No person shall have
any claim or right to be granted an Award, and the grant of an Award shall not
be construed as giving a Participant the right to continued employment or any
other relationship with the Company. The Company expressly reserves the right at
any time to dismiss or otherwise terminate its relationship with a Participant
free from any liability or claim under the Plan or otherwise, except as
expressly provided in the applicable Award.
b. NO RIGHTS AS STOCKHOLDER. Subject to the provisions of the
applicable Award, no Participant or Designated Beneficiary shall have any rights
as a stockholder with respect to any shares of Common Stock to be distributed
with respect to an Award until becoming the record holder of such shares.
Notwithstanding the foregoing, in the event the Company effects a split of the
Common Stock by means of a stock dividend and the exercise price of and the
number of shares subject to such Option are adjusted as of the date of the
distribution of the dividend (rather than as of the record date for such
dividend), then an optionee who exercises an Option between the record date and
the distribution date for such stock dividend shall be entitled to receive, on
the distribution date, the stock dividend with respect to the shares of Common
Stock acquired upon such Option exercise, notwithstanding the fact that such
shares were not outstanding as of the close of business on the record date for
such stock dividend.
c. EFFECTIVE DATE AND TERM OF PLAN. The Plan shall become
effective on the date on which it is adopted by the Board. No Awards shall be
granted under the Plan
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<PAGE> 9
after the completion of ten years from the earlier of (i) the date on which the
Plan was adopted by the Board or (ii) the date the Plan was approved by the
Company's stockholders, but Awards previously granted may extend beyond that
date.
d. AMENDMENT OF PLAN. The Board may amend, suspend or terminate
the Plan or any portion thereof at any time.
e. GOVERNING LAW. The provisions of the Plan and all Awards made
hereunder shall be governed by and interpreted in accordance with the laws of
the State of Delaware, without regard to any applicable conflicts of law.
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<PAGE> 10
STUDENT ADVANTAGE, INC.
INCENTIVE STOCK OPTION AGREEMENT
GRANTED UNDER 1998 STOCK INCENTIVE PLAN
1. GRANT OF OPTION.
This agreement evidences the grant by Student Advantage, Inc., a
Delaware corporation (the "Company"), on the Grant Date set forth on SCHEDULE A
hereto, to the undersigned employee of the Company (the "Participant"), of an
option to purchase, in whole or in part, on the terms provided herein and in the
Company's 1998 Stock Incentive Plan (the "Plan"), the number of shares set forth
on SCHEDULE A (the "Shares") of common stock, $.01 par value per share, of the
Company ("Common Stock") at the exercise price set forth on SCHEDULE A. Unless
earlier terminated, this option shall expire 10 years after the Grant Date (the
"Final Exercise Date").
It is intended that the option evidenced by this agreement shall be an
incentive stock option as defined in Section 422 of the Internal Revenue Code of
1986, as amended and any regulations promulgated thereunder (the "Code"). Except
as otherwise indicated by the context, the term "Participant", as used in this
option, shall be deemed to include any person who acquires the right to exercise
this option validly under its terms.
2. VESTING SCHEDULE.
This option will vest in accordance with SCHEDULE A attached hereto.
Except as otherwise set forth on SCHEDULE A, the Option shall only be
exercisable as to Shares that have become vested in accordance with SCHEDULE A.
The right of exercise shall be cumulative so that to the extent the
option is not exercised in any period to the maximum extent permissible it shall
continue to be exercisable, in whole or in part, with respect to all shares for
which it is vested until the earlier of the Final Exercise Date or the
termination of this option under Section 3 hereof or the Plan.
3. EXERCISE OF OPTION.
(a) FORM OF EXERCISE. Each election to exercise this option shall
be in writing, signed by the Participant, and received by the Company at its
principal office, accompanied by this agreement, and payment in full in the
manner provided in the Plan. The Participant may purchase less than the number
of shares covered hereby, provided that no partial exercise of this option may
be for any fractional share or for fewer than ten whole shares.
<PAGE> 11
(b) CONTINUOUS RELATIONSHIP WITH THE COMPANY REQUIRED. Except as
otherwise provided in this Section 3, this option may not be exercised unless
the Participant, at the time he or she exercises this option, is, and has been
at all times since the Grant Date, an employee, officer or director of, or
consultant or advisor to, the Company or any parent or subsidiary of the Company
as defined in Section 424(e) or (f) of the Code (an "Eligible Participant").
(c) TERMINATION OF RELATIONSHIP WITH THE COMPANY. If the
Participant ceases to be an Eligible Participant for any reason, then, except as
provided in paragraph (d) below, the right to exercise this option shall
terminate three months after such cessation (but in no event after the Final
Exercise Date), PROVIDED THAT this option shall be exercisable only to the
extent that this option was vested, in accordance with SCHEDULE A, on the date
of such cessation. Notwithstanding the foregoing, if the Participant, prior to
the Final Exercise Date, violates the non-competition or confidentiality
provisions of any employment contract, confidentiality and nondisclosure
agreement or other agreement between the Participant and the Company, the right
to exercise this option shall terminate immediately upon such violation.
(d) EXERCISE PERIOD UPON DEATH OR DISABILITY. If the Participant
dies or becomes disabled (within the meaning of Section 22(e)(3) of the Code)
prior to the Final Exercise Date while he or she is an Eligible Participant,
this option shall be exercisable, within the period of one year following the
date of death or disability of the Participant by the Participant, PROVIDED THAT
this option shall be exercisable only to the extent that this option was vested,
in accordance with SCHEDULE A, on the date of his or her death or disability,
and further provided that this option shall not be exercisable after the Final
Exercise Date.
4. RIGHT OF FIRST REFUSAL.
(a) If the Participant proposes to sell, assign, transfer, pledge,
hypothecate or otherwise dispose of, by operation of law or otherwise
(collectively, "transfer") any Shares acquired upon exercise of this option,
then the Participant shall first give written notice of the proposed transfer
(the "Transfer Notice") to the Company. The Transfer Notice shall name the
proposed transferee and state the number of such Shares the Participant proposes
to transfer (the "Offered Shares"), the price per share and all other material
terms and conditions of the transfer.
(b) For 30 days following its receipt of such Transfer Notice, the
Company shall have the option to purchase all (but not less than all) of the
Offered Shares at the price and upon the terms set forth in the Transfer Notice.
In the event the Company elects to purchase all of the Offered Shares, it shall
give written notice of such election to the Participant within such 30-day
period. Within 10 days after his or her receipt of
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<PAGE> 12
such notice, the Participant shall tender to the Company at its principal
offices the certificate or certificates representing the Offered Shares, duly
endorsed in blank by the Participant or with duly endorsed stock powers attached
thereto, all in a form suitable for transfer of the Offered Shares to the
Company. Upon receipt of such certificate or certificates, the Company shall
deliver or mail to the Participant a check in payment of the purchase price for
the Offered Shares; PROVIDED THAT if the terms of payment set forth in the
Transfer Notice were other than cash against delivery, the Company may pay for
the Offered Shares on the same terms and conditions as were set forth in the
Transfer Notice.
(c) At and after the time at which the Offered Shares are required
to be delivered to the Company for transfer to the Company pursuant to
subsection (b) above, the Company shall not pay any dividend to the Participant
on account of such Shares or permit the Participant to exercise any of the
privileges or rights of a stockholder with respect to such Offered Shares, but
shall, in so far as permitted by law, treat the Company as the owner of such
Offered Shares.
(d) If the Company does not elect to acquire all of the Offered
Shares, the Participant may, within the 30-day period following the expiration
of the option granted to the Company under subsection (b) above, transfer the
Offered Shares to the proposed transferee, PROVIDED THAT such transfer shall not
be on terms and conditions more favorable to the transferee than those contained
in the Transfer Notice. Notwithstanding any of the above, all Offered Shares
transferred pursuant to this Section 4 shall remain subject to this Agreement
(including without limitation the right of first refusal set forth in this
Section 4) and such transferee shall, as a condition to such transfer, deliver
to the Company a written instrument confirming that such transferee shall be
bound by all of the terms and conditions of this Agreement.
(e) The following transactions shall be exempt from the provisions
of this Section 4:
(1) any transfer of Shares to or for the benefit of any
spouse or child of the Participant, or to a trust for their benefit;
(2) any transfer pursuant to an effective registration
statement filed by the Company under the Securities Act of 1933, as amended (the
"Securities Act"); and
(3) any transfer of the Shares pursuant to the sale of
all or substantially all of the business of the Company;
PROVIDED, HOWEVER, that in the case of a transfer pursuant to clause (1) above,
such Shares shall remain subject to this Agreement (including without limitation
the right of first refusal set forth in this Section 4) and such transferee
shall, as a condition to such
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<PAGE> 13
transfer, deliver to the Company a written instrument confirming that such
transferee shall be bound by all of the terms and conditions of this Agreement.
(f) The Company may assign its rights to purchase Offered Shares
in any particular transaction under this Section 4 to one or more persons or
entities.
(g) The provisions of this Section 4 shall terminate upon the
earlier of the following events:
(1) the closing of the sale of shares of Common Stock in
an underwritten public offering pursuant to an effective registration statement
filed by the Company under the Securities Act; or
(2) the sale of all or substantially all of the assets or
business of the Company, by merger, consolidation, sale of assets or otherwise
(except a merger or consolidation in which the holders of capital stock of the
Company immediately prior to such merger or consolidation continue to hold
immediately following such merger or consolidation at least 662/3% by voting
power of the capital stock of the surviving corporation).
(h) The Company shall not be required (a) to transfer on its books
any of the Shares which shall have been sold or transferred in violation of any
of the provisions set forth in this Section 4, or (b) to treat as owner of such
Shares or to pay dividends to any transferee to whom any such Shares shall have
been so sold or transferred.
5. AGREEMENT IN CONNECTION WITH PUBLIC OFFERING.
The Participant agrees, in connection with the initial underwritten
public offering of the Company's securities pursuant to a registration statement
under the Securities Act, (i) not to sell, make short sale of, loan, grant any
options for the purchase of, or otherwise dispose of any shares of Common Stock
held by the Participant (other than those shares included in the offering)
without the prior written consent of the Company or the underwriters managing
such initial underwritten public offering of the Company's securities for a
period of 180 days from the effective date of such registration statement, and
(ii) to execute any agreement reflecting clause (i) above as may be requested by
the Company or the managing underwriters at the time of such offering.
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<PAGE> 14
6. WITHHOLDING.
No Shares will be issued pursuant to the exercise of this option unless
and until the Participant pays to the Company, or makes provision satisfactory
to the Company for payment of, any federal, state or local withholding taxes
required by law to be withheld in respect of this option.
7. NONTRANSFERABILITY OF OPTION.
This option may not be sold, assigned, transferred, pledged or
otherwise encumbered by the Participant, either voluntarily or by operation of
law, except by will or the laws of descent and distribution, and, during the
lifetime of the Participant, this option shall be exercisable only by the
Participant.
8. DISQUALIFYING DISPOSITION.
If the Participant disposes of Shares acquired upon exercise of this
option within two years from the Grant Date or one year after such Shares were
acquired pursuant to exercise of this option, the Participant shall notify the
Company in writing of such disposition.
9. CONFIDENTIALITY/NON-COMPETE AGREEMENT.
In consideration for the grant of the option evidenced by this
Agreement, the Participant hereby ratifies and confirms the
Confidentiality/Non-Compete Agreement previously entered into by the
Participant, and his or her obligations thereunder.
10. PROVISIONS OF THE PLAN.
This option is subject to the provisions of the Plan, a copy of which
is furnished to the Participant with this option.
[THE NEXT PAGE IS THE SIGNATURE PAGE]
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<PAGE> 15
IN WITNESS WHEREOF, the Company has caused this option to be executed
under its corporate seal by its duly authorized officer. This option shall take
effect as a sealed instrument.
STUDENT ADVANTAGE, INC.
By:
-----------------------------------
Name:
Title:
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<PAGE> 16
PARTICIPANT'S ACCEPTANCE
The undersigned hereby accepts the foregoing option and agrees to the
terms and conditions thereof. The undersigned hereby acknowledges receipt of a
copy of the Company's 1998 Stock Incentive Plan.
PARTICIPANT:
________________________________________
[Signature]
Name: __________________________________
Address: _______________________________
_______________________________
Social Security Number: ________________
SCHEDULE A
1. Number of Shares: _________________________
2. Exercise Price Per Share: _________________________
3. Grant Date: _________________________
4. Vesting Commencement Date: _________________________
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<PAGE> 17
SCHEDULE A (CONTINUED)
5. Vesting Terms:
(a) This option shall vest as to 25% of the Shares on the first
anniversary of the Vesting Commencement Date and as to an additional 25% of the
Shares at the end of each successive full one-year period following the first
anniversary of the Vesting Commencement Date until the fourth anniversary of the
Vesting Commencement Date.
(b) Upon the occurrence of a Change in Control Event (as defined
below), this option shall, immediately prior to the closing of the Change in
Control Event, become vested and exercisable as to an additional number of
Shares such that the total number of then-vested Shares shall be the sum of:
(X) a percentage of the Shares equal to a fraction, the
numerator of which is the number of full months that have
elapsed since the Vesting Commencement Date and the
denominator of which is 48, plus
(Y) a percentage of the Shares equal to 50% of the Shares
that remain unvested after application of the immediately
preceding clause (X).
By way of example, if the Change in Control Event occurs in the middle of the
17th month following the Vesting Commencement Date, the option shall become
vested and exercisable as to 66.6% of the Shares (the sum of (A) 33.3% (16
divided by 48), and (B) 50% of the otherwise-remaining (66.7% in this example)
unvested Shares (33.3%)).
(c) If this option is assumed by the acquiring person in such
Change in Control Event pursuant to the provisions of the Plan, the unvested
portion of this option, after taking into account the accelerated vesting that
will take place pursuant to paragraph (b) above, shall (subject to paragraph (d)
below) continue to vest in equal monthly installments from the date of the
closing of the Change in Control Event to the date 48 months after the Vesting
Commencement Date.
(d) If, following a Change in Control Event, the surviving or
acquiring entity (the "Acquiror") terminates the employment of the Participant
without Cause or the Participant terminates his or her employment for Good
Reason, upon such termination this option shall become vested and exercisable in
full. "Cause" for this purpose shall mean one or more of the following: (i)
gross negligence, willful misconduct, dishonesty or breach of fiduciary duty to
the Acquiror; (ii) the commission of an act of embezzlement or fraud; (iii)
deliberate disregard of the rules or policies of the Acquiror which results in
loss, damage or injury to the Acquiror; and (iv) unauthorized disclosure of any
trade secret or confidential information of the Acquiror. "Good Reason" shall
mean (i) any reduction in the Participant's annual cash compensation as
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<PAGE> 18
in effect immediately prior to the Change in Control Event, (ii) a requirement
that the Participant perform his or her principal duties for the Acquiror to a
new location that is outside a radius of 35 miles from the location at which he
or she performed his or her duties immediately prior to the Change in Control
Event, or (iii) a requirement that the Participant travel on an overnight basis
more than 45 days in any 12-month consecutive period or (iv) a material
reduction in the Participant's responsibilities as in effect immediately prior
to the Change in Control Event.
(e) With the consent of the Board, which may be withheld, the
Participant may at any time exercise this option as to all of the Shares,
including then unvested Shares, PROVIDED, that the Participant as a condition to
such exercise executes and delivers an Agreement Covering Shares Acquired Upon
Exercise of Unvested Options (and escrow agreement), upon terms satisfactory to
the Company, pursuant to which the Company shall have the right to purchase,
upon termination of the Participant's employment, all Shares that would not then
have been vested under the terms set forth in paragraphs (a) through (d) above.
(f) A "Change in Control Event" shall mean:
(i) the acquisition by an individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial
ownership of any capital stock of the Company if, after such acquisition, such
Person beneficially owns (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) 50% or more of either (x) the then-outstanding shares of common
stock of the Company (the "Outstanding Company Common Stock") or (y) the
combined voting power of the then-outstanding securities of the Company entitled
to vote generally in the election of directors (the "Outstanding Company Voting
Securities"); PROVIDED, HOWEVER, that for purposes of this subsection (i), the
following acquisitions shall not constitute a Change in Control Event: (A) any
acquisition directly from the Company (excluding an acquisition pursuant to the
exercise, conversion or exchange of any security exercisable for, convertible
into or exchangeable for common stock or voting securities of the Company,
unless the Person exercising, converting or exchanging such security acquired
such security directly from the Company or an underwriter or agent of the
Company), (B) any acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any corporation controlled by the
Company, or (C) any acquisition by any corporation pursuant to a Business
Combination (as defined below) which complies with clauses (x) and (y) of
subsection (ii) of this definition; or
(ii) the consummation of a merger, consolidation,
reorganization, recapitalization or statutory share exchange involving the
Company or a sale or other disposition of all or substantially all of the assets
of the Company (a "Business Combination"), unless, immediately following such
Business Combination, each of the
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<PAGE> 19
following two conditions is satisfied: (x) all or substantially all of the
individuals and entities who were the beneficial owners of the Outstanding
Company Common Stock and Outstanding Company Voting Securities immediately prior
to such Business Combination beneficially own, directly or indirectly, more than
50% of the then-outstanding shares of common stock and the combined voting power
of the then-outstanding securities entitled to vote generally in the election of
directors, respectively, of the resulting or acquiring corporation in such
Business Combination (which shall include, without limitation, a corporation
which as a result of such transaction owns the Company or substantially all of
the Company's assets either directly or through one or more subsidiaries) (such
resulting or acquiring corporation is referred to herein as the "Acquiring
Corporation") in substantially the same proportions as their ownership of the
Outstanding Company Common Stock and Outstanding Company Voting Securities,
respectively, immediately prior to such Business Combination and (y) no Person
(excluding the Acquiring Corporation or any employee benefit plan (or related
trust) maintained or sponsored by the Company or by the Acquiring Corporation)
beneficially owns, directly or indirectly, 50% or more of the then-outstanding
shares of common stock of the Acquiring Corporation, or of the combined voting
power of the then-outstanding securities of such corporation entitled to vote
generally in the election of directors (except to the extent that such ownership
existed prior to the Business Combination).
A-4
<PAGE> 1
Exhibit 10.4
INDEMNIFICATION AGREEMENT
This Agreement is made as of the _____ day of ________ 1999, by and
between Student Advantage, Inc., a Delaware corporation (the "Corporation), and
__________ ("Indemnitee"), a director or officer of the Corporation.
WHEREAS, it is essential to the Corporation to retain and attract as
directors and officers the most capable persons available, and
WHEREAS, the substantial increase in corporate litigation subjects
directors and officers to expensive litigation risks at the same time that the
availability of directors' and officers' liability insurance has been severely
limited, and
WHEREAS, it is now and has always been the express policy of the
Corporation to indemnify its directors and officers so as to provide them with
the maximum possible protection permitted by law, and
WHEREAS, Indemnitee does not regard the protection available under the
Corporation's Certificate of Incorporation and insurance as adequate in the
present circumstances, and may not be willing to serve as a director or officer
without adequate protection, and
WHEREAS, the Corporation desires Indemnitee to serve as a director or
officer of the Corporation.
NOW THEREFORE, the Corporation and Indemnitee do hereby agree as
follows:
1. Agreement to Serve. Indemnitee agrees to serve or continue to serve
as a director or officer of the Corporation for so long as he is duly elected or
appointed or until such time as he tenders his resignation in writing.
2. Definitions. As used in this Agreement:
(a) The term "Proceeding" shall include any threatened,
pending or completed action, suit, or proceeding, whether brought by or in the
right of the Corporation or otherwise and whether of a civil, criminal,
administrative or investigative nature, and any appeal therefrom.
(b) The term "Corporate Status" shall mean the status of a
person who is or was a director or officer of the Corporation, or is or was
serving, or has agreed to serve, at the request of the Corporation, as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise.
<PAGE> 2
(c) The term "Expenses" shall include, without limitation,
attorneys' fees, retainers, court costs, transcript costs, fees of experts,
travel expenses, duplicating costs, printing and binding costs, telephone
charges, postage, delivery service fees and other disbursements or expenses of
the types customarily incurred in connection with investigations, judicial or
administrative proceedings or appeals, but shall not include the amount of
judgments, fines or penalties against Indemnitee or amounts paid in settlement
in connection with such matters.
(d) References to "other enterprise" shall include employee
benefit plans; references to "fines" shall include any excise tax assessed with
respect to any employee benefit plan; references to "serving at the request of
the Corporation" shall include any service as a director, officer, employee or
agent of the Corporation which imposes duties on, or involves services by, such
director, officer, employee, or agent with respect to an employee benefit plan,
its participants, or beneficiaries; and a person who acted in good faith and in
a manner he reasonably believed to be in the interests of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the Corporation" as referred to in
this Agreement.
3. Indemnification in Third-Party Proceedings. The Corporation shall
indemnify Indemnitee in accordance with the provisions of this Paragraph 3 if
Indemnitee was or is a party to or threatened to be made a party to or otherwise
involved in any Proceeding (other than a Proceeding by or in the right of the
Corporation to procure a judgment in its favor) by reason of his Corporate
Status or by reason of any action alleged to have been taken or omitted in
connection therewith, against all Expenses, judgments, fines, penalties and
amounts paid in settlement actually and reasonably incurred by Indemnitee or on
his behalf in connection with such Proceeding, if Indemnitee acted in good faith
and in a manner which he reasonably believed to be in, or not opposed to, the
best interests of the Corporation and, with respect to any criminal Proceeding,
had no reasonable cause to believe that his conduct was unlawful. The
termination of any Proceeding by judgment, order, settlement, conviction or upon
a plea of nolo contendere, or its equivalent, shall not, of itself, create a
presumption that Indemnitee did not act in good faith and in a manner which he
reasonably believed to be in, or not opposed to, the best interests of the
Corporation, and, with respect to any criminal Proceeding, had reasonable cause
to believe that his conduct was unlawful.
4. Indemnification in Proceedings by or in the Right of the
Corporation. The Corporation shall indemnify Indemnitee in accordance with the
provisions of this Paragraph 4 if Indemnitee is a party to or threatened to be
made a party to or otherwise involved in any Proceeding by or in the right of
the Corporation to procure a judgment in its favor by reason of his Corporate
Status or by reason of any action alleged to have been taken or omitted in
connection therewith, against all Expenses and, to the extent
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<PAGE> 3
permitted by law, amounts paid in settlement actually and reasonably incurred by
Indemnitee or on his behalf in connection with such Proceeding, if he acted in
good faith and in a manner which he reasonably believed to be in, or not opposed
to, the best interests of the Corporation, except that no indemnification shall
be made under this Paragraph 4 in respect of any claim, issue, or matter as to
which Indemnitee shall have been adjudged to be liable to the Corporation,
unless and only to the extent that the Court of Chancery of Delaware shall
determine upon application that, despite the adjudication of such liability but
in view of all the circumstances of the case, Indemnitee is fairly and
reasonably entitled to indemnity for such Expenses as the Court of Chancery
shall deem proper.
5. Exceptions to Right of Indemnification. Notwithstanding anything to
the contrary in this Agreement, except as set forth in Paragraph 10, the
Corporation shall not indemnify the Indemnitee in connection with a Proceeding
(or part thereof) initiated by the Indemnitee unless the initiation thereof was
approved by the Board of Directors of the Corporation. Notwithstanding anything
to the contrary in this Agreement, the Corporation shall not indemnify the
Indemnitee to the extent the Indemnitee is reimbursed from the proceeds of
insurance, and in the event the Corporation makes any indemnification payments
to the Indemnitee and the Indemnitee is subsequently reimbursed from the
proceeds of insurance, the Indemnitee shall promptly refund such indemnification
payments to the Corporation to the extent of such insurance reimbursement.
6. Indemnification of Expenses of Successful Party. Notwithstanding any
other provision of this Agreement, to the extent that Indemnitee has been
successful, on the merits or otherwise, in defense of any Proceeding or in
defense of any claim, issue or matter therein, Indemnitee shall be indemnified
against all Expenses incurred by him or on his behalf in connection therewith.
Without limiting the foregoing, if any Proceeding or any claim, issue or matter
therein is disposed of, on the merits or otherwise (including a disposition
without prejudice), without (i) the disposition being adverse to the Indemnitee,
(ii) an adjudication that the Indemnitee was liable to the Corporation, (iii) a
plea of guilty or nolo contendere by the Indemnitee, (iv) an adjudication that
the Indemnitee did not act in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the Corporation, and (v) with
respect to any criminal proceeding, an adjudication that the Indemnitee had
reasonable cause to believe his conduct was unlawful, the Indemnitee shall be
considered for the purposes hereof to have been wholly successful with respect
thereto.
7. Notification and Defense of Claim. As a condition precedent to his
right to be indemnified, the Indemnitee must notify the Corporation in writing
as soon as practicable of any Proceeding for which indemnity will or could be
sought by him and provide the Corporation with a copy of any summons, citation,
subpoena, complaint, indictment, information or other document relating to such
Proceeding with which he
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is served. With respect to any Proceeding of which the Corporation is so
notified, the Corporation will be entitled to participate therein at its own
expense and/or to assume the defense thereof at its own expense, with legal
counsel reasonably acceptable to the Indemnitee. After notice from the
Corporation to the Indemnitee of its election so to assume such defense, the
Corporation shall not be liable to the Indemnitee for any legal or other
expenses subsequently incurred by the Indemnitee in connection with such claim,
other than as provided below in this Paragraph 7. The Indemnitee shall have the
right to employ his own counsel in connection with such claim, but the fees and
expenses of such counsel incurred after notice from the Corporation of its
assumption of the defense thereof shall be at the expense of the Indemnitee
unless (i) the employment of counsel by the Indemnitee has been authorized by
the Corporation, (ii) counsel to the Indemnitee shall have reasonably concluded
that there may be a conflict of interest or position on any significant issue
between the Corporation and the Indemnitee in the conduct of the defense of such
action or (iii) the Corporation shall not in fact have employed counsel to
assume the defense of such action, in each of which cases the fees and expenses
of counsel for the Indemnitee shall be at the expense of the Corporation, except
as otherwise expressly provided by this Agreement. The Corporation shall not be
entitled, without the consent of the Indemnitee, to assume the defense of any
claim brought by or in the right of the Corporation or as to which counsel for
the Indemnitee shall have reasonably made the conclusion provided for in clause
(ii) above.
8. Advancement of Expenses. Subject to the provisions of Paragraph 9
below, in the event that the Corporation does not assume the defense pursuant to
Paragraph 7 of this Agreement of any Proceeding to which Indemnitee was or is a
party or is threatened to be made a party by reason of his Corporate Status or
by reason of any action alleged to have been taken or omitted in connection
therewith and of which the Corporation receives notice under this Agreement, any
Expenses incurred by the Indemnitee in defending such Proceeding shall be paid
by the Corporation in advance of the final disposition of such matter; provided,
however, that the payment of such Expenses incurred by the Indemnitee in advance
of the final disposition of such matter shall be made only upon receipt of an
undertaking by or on behalf of the Indemnitee to repay all amounts so advanced
in the event that it shall ultimately be determined that the Indemnitee is not
entitled to be indemnified by the Corporation as authorized in this Agreement;
and further provided that no such advancement of expenses shall be made if it is
determined that (i) the Indemnitee did not act in good faith and in a manner he
reasonably believes to be in, or not opposed to, the best interests of the
Corporation, or (ii) with respect to any criminal action or proceeding, the
Indemnitee had reasonable cause to believe his conduct was unlawful. Such
undertaking shall be accepted without reference to the financial ability of the
Indemnitee to make repayment.
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<PAGE> 5
9. Procedure for Indemnification. In order to obtain indemnification or
advancement of Expenses pursuant to Paragraphs 3, 4, 6 or 8 of this Agreement,
Indemnitee shall submit to the Corporation a written request, including in such
request such documentation and information as is reasonably available to
Indemnitee and is reasonably necessary to determine whether and to what extent
Indemnitee is entitled to indemnification or advancement of Expenses. Any such
indemnification or advancement of Expenses shall be made promptly, and in any
event within 60 days after receipt by the Corporation of the written request of
the Indemnitee, unless with respect to requests under Paragraphs 3, 4 or 8 the
Corporation determines within such 60-day period that such Indemnitee did not
meet the applicable standard of conduct set forth in Paragraph 3, 4 or 8, as the
case may be. Such determination shall be made in each instance (a) by a majority
vote of the directors of the Corporation consisting of persons who are not at
that time parties to the Proceeding ("disinterested directors"), whether or not
a quorum, (b) by a committee of disinterested directors designated by majority
vote of disinterested directors, whether or not a quorum, (c) if there are no
disinterested directors, or if disinterested directors so direct, by independent
legal counsel (who may, to the extent permitted by applicable law, be regular
legal counsel to the Corporation) in a written opinion, or (d) by the
stockholders.
10. Remedies. The right to indemnification or advancement of Expenses
as provided by this Agreement shall be enforceable by the Indemnitee in any
court of competent jurisdiction if the Corporation denies such request, in whole
or in part, or if no disposition thereof is made within the 60-day period
referred to above in Paragraph 9. Unless otherwise required by law, the burden
of proving that indemnification is not appropriate shall be on the Corporation.
Neither the failure of the Corporation to have made a determination prior to the
commencement of such action that indemnification is proper in the circumstances
because Indemnitee has met the applicable standard of conduct, nor an actual
determination by the Corporation pursuant to Paragraph 9 that Indemnitee has not
met such applicable standard of conduct, shall be a defense to the action or
create a presumption that Indemnitee has not met the applicable standard of
conduct. Indemnitee's expenses (of the type described in the definition of
"Expenses" in Paragraph 2(c)) reasonably incurred in connection with
successfully establishing his right to indemnification, in whole or in part, in
any such Proceeding shall also be indemnified by the Corporation.
11. Partial Indemnification. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Corporation for some or a
portion of the Expenses, judgments, fines, penalties or amounts paid in
settlement actually and reasonably incurred by him or on his behalf in
connection with any Proceeding but not, however, for the total amount thereof,
the Corporation shall nevertheless indemnify Indemnitee for the portion of such
Expenses, judgments, fines, penalties or amounts paid in settlement to which
Indemnitee is entitled.
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<PAGE> 6
12. Subrogation. In the event of any payment under this Agreement, the
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of Indemnitee, who shall execute all papers required and take
all action necessary to secure such rights, including execution of such
documents as are necessary to enable the Corporation to bring suit to enforce
such rights.
13. Term of Agreement. This Agreement shall continue until and
terminate upon the later of (a) six years after the date that Indemnitee shall
have ceased to serve as a director or officer of the Corporation or, at the
request of the Corporation, as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise or (b) the
final termination of all Proceedings pending on the date set forth in clause (a)
in respect of which Indemnitee is granted rights of indemnification or
advancement of Expenses hereunder and of any proceeding commenced by Indemnitee
pursuant to Paragraph 10 of this Agreement relating thereto.
14. Indemnification Hereunder Not Exclusive. The indemnification and
advancement of Expenses provided by this Agreement shall not be deemed exclusive
of any other rights to which Indemnitee may be entitled under the Certification
of Incorporation, the By-Laws, any agreement, any vote of stockholders or
disinterested directors, the General Corporation Law of Delaware, any other law
(common or statutory), or otherwise, both as to action in his official capacity
and as to action in another capacity while holding office for the Corporation.
Nothing contained in this Agreement shall be deemed to prohibit the Corporation
from purchasing and maintaining insurance, at its expense, to protect itself or
the Indemnitee against any expense, liability or loss incurred by it or him in
any such capacity, or arising out of his status as such, whether or not the
Indemnitee would be indemnified against such expense, liability or loss under
this Agreement; provided that the Corporation shall not be liable under this
Agreement to make any payment of amounts otherwise indemnifiable hereunder if
and to the extent that Indemnitee has otherwise actually received such payment
under any insurance policy, contract, agreement or otherwise.
15. No Special Rights. Nothing herein shall confer upon Indemnitee any
right to continue to serve as an officer or director of the Corporation for any
period of time or at any particular rate of compensation.
16. Savings Clause. If this Agreement or any portion thereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify Indemnitee as to Expenses, judgments,
fines, penalties and amounts paid in settlement with respect to any Proceeding
to the full extent permitted by any applicable portion of this Agreement that
shall not have been invalidated and to the fullest extent permitted by
applicable law.
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<PAGE> 7
17. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall constitute the original.
18. Successors and Assigns. This Agreement shall be binding upon the
Corporation and its successors and assigns and shall inure to the benefit of the
estate, heirs, executors, administrators and personal representatives of
Indemnitee.
19. Headings. The headings of the paragraphs of this Agreement are
inserted for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction thereof.
20. Modification and Waiver. This Agreement may be amended from time to
time to reflect changes in Delaware law or for other reasons. No supplement,
modification or amendment of this Agreement shall be binding unless executed in
writing by both of the parties hereto. No waiver of any of the provisions of
this Agreement shall be deemed or shall constitute a waiver of any other
provision hereof nor shall any such waiver constitute a continuing waiver.
21. Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been given (i) when
delivered by hand or (ii) if mailed by certified or registered mail with postage
prepaid, on the third day after the date on which it is so mailed:
(a) if to the Indemnitee, to:
__________________________
__________________________
__________________________
(b) if to the Corporation, to:
Student Advantage, Inc.
280 Summer Street
Boston, MA 02210
Attn: President
or to such other address as may have been furnished to Indemnitee by the
Corporation or to the Corporation by Indemnitee, as the case may be.
22. Applicable Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware.
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<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
STUDENT ADVANTAGE, INC.
Attest: By:____________________________
Name:
By: __________________________ Title:
Name:
INDEMNITEE:
_______________________________
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<PAGE> 1
Exhibit 10.5
STUDENT ADVANTAGE, INC.
INVESTOR RIGHTS AGREEMENT
This Agreement dated as of October 20, 1998 is entered into by and
among Student Advantage, Inc., a Delaware corporation (the "Company"), the
individual and entity listed on Exhibit A attached hereto (the "Purchasers"),
Princeton Review Publishing, LLC ("PRP") and Raymond V. Sozzi, Jr. (the
"Founder").
Recitals
WHEREAS, the Company and the Purchasers have entered into a Series A
Convertible Preferred Stock Purchase Agreement of even date herewith (the
"Purchase Agreement"); and
WHEREAS, the Company and the Purchasers desire to provide for certain
arrangements with respect to (i) the registration of shares of capital stock of
the Company under the Securities Act of 1933, as amended, (ii) the Purchasers'
right of first refusal with respect to certain issuances of securities of the
Company, and (iii) certain negative covenants of the Company; and
WHEREAS, PRP has acquired shares of Common Stock of the Company in
exchange for its membership interests in Student Advantage LLC, and the parties
desire that PRP shall participate in certain rights set forth herein;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained in this Agreement, the parties hereto agree as follows:
1. Certain Definitions.
As used in this Agreement, the following terms shall have the following
respective meanings:
"Commission" means the Securities and Exchange Commission, or
any other federal agency at the time administering the Securities Act.
"Common Stock" means the common stock, $.01 par value per
share, of the Company.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any successor federal statute, and the rules and regulations of the
Commission issued under such Act, as they each may, from time to time, be in
effect.
<PAGE> 2
"Founder Registrable Shares" means shares of Common Stock held
by the Founder on the date hereof.
"Initiating Holders" means the Stockholders initiating a
request for registration pursuant to Section 2.1(a) or 2.1(b), as the case may
be.
"Initial Public Offering" means the initial underwritten
public offering of shares of Common Stock pursuant to an effective registration
statement under the Securities Act.
"Other Holders" means holders of securities of the Company who
are entitled by contract to include such securities in a Registration Statement.
"Prospectus" means the prospectus included in any Registration
Statement, as amended or supplemented by an amendment or prospectus supplement,
including post-effective amendments, and all material incorporated by reference
or deemed to be incorporated by reference in such Prospectus.
"Registration Statement" means a registration statement filed
by the Company with the Commission for a public offering and sale of securities
of the Company (other than a registration statement on Form S-8 or Form S-4, or
their successors, or any other form for a similar limited purpose, or any
registration statement covering only securities proposed to be issued in
exchange for securities or assets of another corporation).
"Registration Expenses" means the expenses described in
Section 2.4.
"Registrable Shares" means (i) the shares of Common Stock
issued or issuable upon conversion of the Shares, (ii) the shares of Common
Stock held by PRP on the date hereof, (iii) Founder Registrable Shares, (iv) any
shares of Common Stock, and any shares of Common Stock issued or issuable upon
the conversion or exercise of any other securities, acquired by the Stockholders
pursuant to Section 3 of this Agreement and (v) any other shares of Common Stock
issued in respect of such shares (because of stock splits, stock dividends,
reclassifications, recapitalizations, or similar events); provided, however,
that shares of Common Stock which are Registrable Shares shall cease to be
Registrable Shares upon (i) any sale pursuant to a Registration Statement or
Rule 144 under the Securities Act or (ii) any sale in any manner to a person or
entity which, by virtue of Section 5 of this Agreement, is not entitled to the
rights provided by this Agreement. Wherever reference is made in this Agreement
to a request or consent of holders of a certain percentage of Registrable
Shares, the determination of such percentage shall include shares of Common
Stock issuable upon conversion of the Shares even if such conversion has not
been effected.
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<PAGE> 3
"Securities Act" means the Securities Act of 1933, as amended,
or any successor federal statute, and the rules and regulations of the
Commission issued under such Act, as they each may, from time to time, be in
effect.
"Selling Stockholder" means any Stockholder owning Registrable
Shares included in a Registration Statement.
"Shares" shall mean the shares of Series A Convertible
Preferred Stock of the Corporation acquired by the Purchasers pursuant to the
Purchase Agreement or the Exchange Agreement of even date herewith by and among
the Company, Student Advantage LLC and others.
"Stockholders" means the Purchasers, PRP, and any persons or
entities to whom the rights granted under this Agreement are transferred by any
of the Purchasers, PRP, or their successors or assigns pursuant to Section 5
hereof. In addition, solely for purposes of Sections 2.2 through 2.8 hereof,
"Stockholders" shall include the Founder, and his successors or assigns pursuant
to Section 5 hereof.
2. Registration Rights
2.1 Required Registrations.
(a) At any time after the closing of the Initial
Public Offering, a Stockholder or Stockholders (other than PRP) holding in the
aggregate at least 40% of the Registrable Shares held by all Stockholders other
than PRP may request, in writing, that the Company effect the registration on
Form S-1 or Form S-2 (or any successor form) of Registrable Shares owned by such
Stockholder or Stockholders having an aggregate value of at least $5,000,000
(based on the public market price at the time of the request).
(b) At any time after the Company becomes eligible to
file a Registration Statement on Form S-3 (or any successor form relating to
secondary offerings), a Stockholder or Stockholders holding in the aggregate at
least 20% of the Registrable Shares may request, in writing, that the Company
effect the registration on Form S-3 (or such successor form), of Registrable
Shares having an aggregate value of at least $1,000,000 (based on the public
market price at the time of the request).
(c) Upon receipt of any request for registration
pursuant to this Section 2.1, the Company shall promptly give written notice of
such proposed registration to all other Stockholders. Such Stockholders shall
have the right, by giving written notice to the Company within 30 days after the
Company provides its notice, to elect to have included in such registration such
of their Registrable Shares as such Stockholders may request in such notice of
election, subject in the case of an
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<PAGE> 4
underwritten offering to the approval of the managing underwriter as provided in
Section 2(d) below. Thereupon, the Company shall, as expeditiously as possible,
use its best efforts to effect the registration on an appropriate registration
form of all Registrable Shares which the Company has been requested to so
register (provided, however, that in the case of a registration requested under
Section 2.1(b), the Company will only be obligated to effect such registration
on Form S-3 (or any successor form)).
(d) If the Initiating Holders intend to distribute
the Registrable Shares covered by their request by means of an underwriting,
they shall so advise the Company as a part of their request made pursuant to
Section 2.1(a) or (b), as the case may be, and the Company shall include such
information in its written notice referred to in Section 2.1(c). The right of
any other Stockholder to include its Registrable Shares in such registration
pursuant to Section 2.1(a) or (b), as the case may be, shall be conditioned upon
such other Stockholder's participation in such underwriting on the terms set
forth herein.
(e) The Initiating Holders shall have the right to
select the managing underwriter(s) for any underwritten offering requested
pursuant to Section 2.1(a) or (b), subject to the approval of the Company, which
approval will not be unreasonably withheld.
(f) The Company shall not be required to effect more
than two registrations pursuant to Section 2.1(a). In addition, the Company
shall not be required to effect any registration (other than on Form S-3 or any
successor form relating to secondary offerings) within six months after the
effective date of any other Registration Statement of the Company. For purposes
of this Section 2.1(f), a Registration Statement shall not be counted until such
time as such Registration Statement has been declared effective by the
Commission (unless the Initiating Holders withdraw their request for such
registration (other than as a result of information concerning the business or
financial condition of the Company which is made known to the Stockholders after
the date on which such registration was requested) and elect not to pay the
Registration Expenses therefor pursuant to Section 2.4).
(g) If at the time of any request to register
Registrable Shares by Initiating Holders pursuant to this Section 2.1, the
Company is engaged or has plans to engage in a registered public offering or is
engaged in any other activity which, in the good faith determination of the
Company's Board of Directors, would be materially adversely affected by the
requested registration, then the Company may at its option direct that such
request be delayed for a period not in excess of 60 days from the date of such
request, such right to delay a request to be exercised by the Company not more
than once in any 24-month period.
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<PAGE> 5
2.2 Incidental Registration.
(a) Whenever the Company proposes to file a
Registration Statement (other than a Registration Statement filed pursuant to
Section 2.1) at any time and from time to time, it will, prior to such filing,
give written notice to all Stockholders of its intention to do so. Upon the
written request of a Stockholder or Stockholders given within 20 days after the
Company provides such notice (which request shall state the intended method of
disposition of such Registrable Shares), the Company shall use its best efforts
to cause all Registrable Shares which the Company has been requested by such
Stockholder or Stockholders to register to be registered under the Securities
Act to the extent necessary to permit their sale or other disposition in
accordance with the intended methods of distribution specified in the request of
such Stockholder or Stockholders; provided that the Company shall have the right
to postpone or withdraw any registration effected pursuant to this Section 2.2
without obligation to any Stockholder.
(b) If the registration for which the Company gives
notice pursuant to Section 2.2(a) is a registered public offering involving an
underwriting, the Company shall so advise the Stockholders as a part of the
written notice given pursuant to Section 2.2(a). In such event, the right of any
Stockholder to include its Registrable Shares in such registration pursuant to
Section 2.2 shall be conditioned upon such Stockholder's participation in such
underwriting on the terms set forth herein. All Stockholders proposing to
distribute their securities through such underwriting shall (together with the
Company, Other Holders, and any officers or directors distributing their
securities through such underwriting) enter into an underwriting agreement in
customary form with the underwriter or underwriters selected for the
underwriting by the Company, provided that such underwriting agreement shall not
provide for indemnification or contribution obligations on the part of the
Purchasers or PRP materially greater than the obligations of the Stockholders
pursuant to Section 2.5. Notwithstanding any other provision of this Section
2.2, if the managing underwriter determines that the inclusion of all shares
requested to be registered would adversely affect the offering, the Company may
limit the number of Registrable Shares to be included in the registration and
underwriting. The Company shall so advise all holders of Registrable Shares
requesting registration, and the number of shares that are entitled to be
included in the registration and underwriting shall be allocated in the
following manner. The securities of the Company held by officers and directors
of the Company (other than Registrable Shares) shall be excluded from such
registration and underwriting to the extent deemed advisable by the managing
underwriter, and, if a further limitation on the number of shares is required,
the number of shares that may be included in such registration and underwriting
shall be allocated among all Stockholders and Other Holders requesting
registration in proportion, as nearly as practicable, to the respective number
of shares of Common Stock (on an as-converted basis) which they held at the time
the Company gives the notice specified in Section
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<PAGE> 6
2.2(a). If any Stockholder or Other Holder would thus be entitled to include
more securities than such holder requested to be registered, the excess shall be
allocated among other requesting Stockholders and Other Holders pro rata in the
manner described in the preceding sentence. If any holder of Registrable Shares
or any officer, director or Other Holder disapproves of the terms of any such
underwriting, such person may elect to withdraw therefrom by written notice to
the Company, and any Registrable Shares or other securities excluded or
withdrawn from such underwriting shall be withdrawn from such registration.
2.3 Registration Procedures.
(a) If and whenever the Company is required by the
provisions of this Agreement to use its best efforts to effect the registration
of any Registrable Shares under the Securities Act, the Company shall:
(i) file with the Commission a Registration
Statement with respect to such Registrable Shares and use its best efforts to
cause that Registration Statement to become and remain effective until all such
Registrable Shares are sold;
(ii) as expeditiously as possible prepare
and file with the Commission any amendments and supplements to the Registration
Statement and the prospectus included in the Registration Statement as may be
necessary to comply with the provisions of the Securities Act (including the
anti-fraud provisions thereof) and to keep the Registration Statement effective
until all such Registrable Shares are sold;
(iii) as expeditiously as possible furnish
to each Selling Stockholder such reasonable numbers of copies of the Prospectus,
including any preliminary Prospectus, in conformity with the requirements of the
Securities Act, and such other documents as such Selling Stockholder may
reasonably request in order to facilitate the public sale or other disposition
of the Registrable Shares owned by such Selling Stockholder;
(iv) as expeditiously as possible use its
best efforts to register or qualify the Registrable Shares covered by the
Registration Statement under the securities or Blue Sky laws of such states as
the Selling Stockholders shall reasonably request, and do any and all other acts
and things that may be necessary or desirable to enable the Selling Stockholders
to consummate the public sale or other disposition in such states of the
Registrable Shares owned by the Selling Stockholder; provided, however, that the
Company shall not be required in connection with this paragraph (iv) to qualify
as a foreign corporation or execute a general consent to service of process in
any jurisdiction;
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<PAGE> 7
(v) as expeditiously as possible, cause all
such Registrable Shares to be listed on each securities exchange or automated
quotation system on which similar securities issued by the Company are then
listed;
(vi) promptly provide a transfer agent and
registrar for all such Registrable Shares not later than the effective date of
such Registration Statement;
(vii) promptly make available for inspection
by the Selling Stockholders, any managing underwriter participating in any
disposition pursuant to such Registration Statement, and any attorney or
accountant or other agent retained by any such underwriter or selected by the
Selling Stockholders, all financial and other records, pertinent corporate
documents and properties of the Company and cause the Company's officers,
directors, employees and independent accountants to supply all information
reasonably requested by any such seller, underwriter, attorney, accountant or
agent in connection with such Registration Statement; provided, however, that
any such person inspecting such documents shall execute a confidentiality
agreement containing customary confidentiality provisions;
(viii) as expeditiously as possible, notify
each Selling Stockholder, promptly after it shall receive notice thereof, of the
time when such Registration Statement has become effective or a supplement to
any Prospectus forming a part of such Registration Statement has been filed; and
(ix) as expeditiously as possible following
the effectiveness of such Registration Statement, notify each seller of such
Registrable Shares of any request by the Commission for the amending or
supplementing of such Registration Statement or Prospectus.
(b) If the Company has delivered a Prospectus to the
Selling Stockholders and after having done so the Prospectus is amended to
comply with the requirements of the Securities Act, the Company shall promptly
notify the Selling Stockholders and, if requested, the Selling Stockholders
shall immediately cease making offers of Registrable Shares and return all
Prospectuses to the Company. The Company shall promptly provide the Selling
Stockholders with revised Prospectuses and, following receipt of the revised
Prospectuses, the Selling Stockholders shall be free to resume making offers of
the Registrable Shares.
(c) In the event that, in the judgment of the
Company, it is advisable to suspend use of a Prospectus included in a
Registration Statement due to pending material developments or other events that
have not yet been publicly disclosed and as to which the Company believes public
disclosure would be detrimental to the Company, the Company shall notify all
Selling Stockholders to such
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<PAGE> 8
effect, and, upon receipt of such notice, each such Selling Stockholder shall
immediately discontinue any sales of Registrable Shares pursuant to such
Registration Statement until such Selling Stockholder has received copies of a
supplemented or amended Prospectus or until such Selling Stockholder is advised
in writing by the Company that the then current Prospectus may be used and has
received copies of any additional or supplemental filings that are incorporated
or deemed incorporated by reference in such Prospectus. Notwithstanding anything
to the contrary herein, the Company shall not exercise its rights under this
Section 2.3(c) to suspend sales of Registrable Shares for a period in excess of
30 days in any 365-day period.
2.4 Allocation of Expenses. The Company will pay all
Registration Expenses for all registrations under this Agreement; provided,
however, that if a registration under Section 2.1 is withdrawn at the request of
the Initiating Holders (other than as a result of information concerning the
business or financial condition of the Company which is made known to the
Stockholders after the date on which such registration was requested) and if the
Initiating Holders elect not to have such registration counted as a registration
requested under Section 2.1, the requesting Stockholders shall pay the
Registration Expenses of such registration pro rata in accordance with the
number of their Registrable Shares included in such registration. For purposes
of this Section, the term "Registration Expenses" shall mean all expenses
incurred by the Company in complying with this Agreement, including, without
limitation, all registration and filing fees, exchange listing fees, printing
expenses, fees and expenses of counsel for the Company and the fees and expenses
of one counsel selected by each Purchaser to represent it, state Blue Sky fees
and expenses, and the expense of any special audits incident to or required by
any such registration, but excluding underwriting discounts, selling commissions
and the fees and expenses of Selling Stockholders' own counsel (other than the
counsel referred to above).
2.5 Indemnification and Contribution.
(a) In the event of any registration of any of the
Registrable Shares under the Securities Act pursuant to this Agreement, the
Company will indemnify and hold harmless the seller of such Registrable Shares,
each underwriter of such Registrable Shares, and each other person, if any, who
controls such seller or underwriter within the meaning of the Securities Act or
the Exchange Act against any losses, claims, damages or liabilities, joint or
several, to which such seller, underwriter or controlling person may become
subject under the Securities Act, the Exchange Act, state securities or Blue Sky
laws or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in any Registration
Statement under which such Registrable Shares were registered under the
Securities Act, any preliminary prospectus or final prospectus contained in the
Registration Statement, or any amendment or supplement to such Registration
Statement, or arise
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<PAGE> 9
out of or are based upon the omission or alleged omission to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading; and the Company will reimburse such seller, underwriter and each
such controlling person for any legal or any other expenses reasonably incurred
by such seller, underwriter or controlling person in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the Company will not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or is based
upon any untrue statement or omission made in such Registration Statement,
preliminary prospectus or prospectus, or any such amendment or supplement, in
reliance upon and in conformity with information furnished to the Company, in
writing, by or on behalf of such seller, underwriter or controlling person
specifically for use in the preparation thereof.
(b) In the event of any registration of any of the
Registrable Shares under the Securities Act pursuant to this Agreement, each
seller of Registrable Shares, severally and not jointly, will indemnify and hold
harmless the Company, each of its directors and officers and each underwriter
(if any) and each person, if any, who controls the Company or any such
underwriter within the meaning of the Securities Act or the Exchange Act,
against any losses, claims, damages or liabilities, joint or several, to which
the Company, such directors and officers, underwriter or controlling person may
become subject under the Securities Act, Exchange Act, state securities or Blue
Sky laws or otherwise, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact contained in any
Registration Statement under which such Registrable Shares were registered under
the Securities Act, any preliminary prospectus or final prospectus contained in
the Registration Statement, or any amendment or supplement to the Registration
Statement, or arise out of or are based upon any omission or alleged omission to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, if the statement or omission was made in
reliance upon and in conformity with information relating to such seller
furnished in writing to the Company by or on behalf of such seller specifically
for use in connection with the preparation of such Registration Statement,
prospectus, amendment or supplement; provided, however, that the obligations of
a Stockholder hereunder shall be limited to an amount equal to the net proceeds
to such Stockholder of Registrable Shares sold in connection with such
registration.
(c) Each party entitled to indemnification under this
Section (the "Indemnified Party") shall give notice to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party to assume the defense of any
such claim or any litigation resulting therefrom; provided, that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or litigation,
shall be approved by the Indemnified
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<PAGE> 10
Party (whose approval shall not be unreasonably withheld or delayed); and,
provided, further, that the failure of any Indemnified Party to give notice as
provided herein shall not relieve the Indemnifying Party of its obligations
under this Section except to the extent that the Indemnifying Party is
materially adversely affected by such failure. The Indemnified Party may
participate in such defense at such party's expense; provided, however, that the
Indemnifying Party shall pay such expense if representation of such Indemnified
Party by the counsel retained by the Indemnifying Party would be inappropriate
due to actual or potential differing interests between the Indemnified Party and
any other party represented by such counsel in such proceeding; provided further
that in no event shall the Indemnifying Party be required to pay the expenses of
more than one law firm per jurisdiction as counsel for the Indemnified Party.
The Indemnifying Party also shall be responsible for the expenses of such
defense if the Indemnifying Party does not elect to assume such defense. No
Indemnifying Party, in the defense of any such claim or litigation shall, except
with the consent of each Indemnified Party, consent to entry of any judgment or
enter into any settlement which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such Indemnified Party of a
release from all liability in respect of such claim or litigation, and no
Indemnified Party shall consent to entry of any judgment or settle such claim or
litigation without the prior written consent of the Indemnifying Party, which
consents shall not be unreasonably withheld or delayed.
(d) In order to provide for just and equitable
contribution in circumstances in which the indemnification provided for in this
Section 2.5 is due in accordance with its terms but for any reason is held to be
unavailable to an Indemnified Party in respect to any losses, claims, damages
and liabilities referred to herein, then the Indemnifying Party shall, in lieu
of indemnifying such Indemnified Party, contribute to the amount paid or payable
by such Indemnified Party as a result of such losses, claims, damages or
liabilities to which such party may be subject in such proportion as is
appropriate to reflect the relative fault of the Company on the one hand and the
Stockholders on the other in connection with the statements or omissions which
resulted in such losses, claims, damages or liabilities, as well as any other
relevant equitable considerations. The relative fault of the Company and the
Stockholders shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of material fact related to information
supplied by the Company or the Stockholders and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company and the Stockholders agree that it would not
be just and equitable if contribution pursuant to this Section 2.5 were
determined by pro rata allocation or by any other method of allocation which
does not take account of the equitable considerations referred to above.
Notwithstanding the provisions of this paragraph of Section 2.5, in no case
shall any one Stockholder be liable or responsible for any amount in excess of
the net proceeds received by such Stockholder from the offering of Registrable
Shares; provided, however, that no person guilty of fraudulent misrepresentation
(within the
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meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. Any party entitled to contribution will, promptly after
receipt of notice of commencement of any action, suit or proceeding against such
party in respect of which a claim for contribution may be made against another
party or parties under this Section, notify such party or parties from whom
contribution may be sought, but the omission so to notify such party or parties
from whom contribution may be sought shall not relieve such party from any other
obligation it or they may have thereunder or otherwise under this Section,
except to the extent that the party from whom contribution is sought is
materially adversely affected by such failure. No party shall be liable for
contribution with respect to any action, suit, proceeding or claim settled
without its prior written consent, which consent shall not be unreasonably
withheld.
2.6 Other Matters with Respect to Underwritten Offerings. In
the event that Registrable Shares are sold pursuant to a Registration Statement
in an underwritten offering pursuant to Section 2.1, the Company agrees to (a)
enter into an underwriting agreement containing customary representations and
warranties with respect to the business and operations of the Company and
customary covenants and agreements to be performed by the Company, including
without limitation customary provisions with respect to indemnification by the
Company of the underwriters of such offering; (b) use its best efforts to cause
its legal counsel to render customary opinions to the underwriters and the
Selling Stockholders with respect to the Registration Statement; and (c) use its
best efforts to cause its independent public accounting firm to issue customary
"cold comfort letters" to the underwriters and the Selling Stockholders with
respect to the Registration Statement.
2.7 Information by Holder. Each holder of Registrable Shares
included in any registration shall furnish to the Company such information
regarding such holder and the distribution proposed by such holder as the
Company may reasonably request in writing and as shall be required in connection
with any registration, qualification or compliance referred to in this
Agreement.
2.8 "Stand-Off" Agreement; Confidentiality of Notices. Each
Stockholder, if requested by the Company and the managing underwriter of an
offering by the Company of Common Stock or other securities of the Company,
agrees not to sell or otherwise transfer or dispose of any Registrable Shares or
other securities of the Company held by such Stockholder for a period of 180
days following the effective date of a Registration Statement; provided, that:
(a) such agreement shall only apply to the initial
public offering of Common Stock of the Company sold in an underwritten offering;
and
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<PAGE> 12
(b) all stockholders of the Company then holding at
least 5% of the outstanding Common Stock (on an as-converted basis) and all
officers and directors of the Company enter into similar agreements.
The Company may impose stop-transfer instructions with respect to the
Registrable Shares or other securities subject to the foregoing restriction
until the end of such 180-day period.
Any Stockholder receiving any written notice from the Company regarding
the Company's plans to file a Registration Statement shall treat such notice
confidentially and shall not disclose such information to any person other than
as necessary to exercise its rights under this Agreement.
2.9 Limitations on Subsequent Registration Rights. The Company
shall not, without the prior written consent of Stockholders holding at least 66
2/3% of the Registrable Shares then held by all Stockholders, enter into any
agreement (other than this Agreement) with any holder or prospective holder of
any securities of the Company which grant such holder or prospective holder
rights to include securities of the Company in any Registration Statement,
unless (a) such rights to include securities in a registration initiated by the
Company are not more favorable than the rights granted to Holders under this
Agreement, and (b) any such rights to initiate a registration provide that no
such initiation may be made prior to the Initial Public Offering and the
Stockholders shall be entitled to include therein Registrable Shares on a pro
rata basis with such holders based on the number of shares of Common Stock (on
an as-converted basis) owned by Stockholders and such holders.
2.10 Rule 144 Requirements. After the earliest of (i) the
closing of the sale of securities of the Company pursuant to a Registration
Statement or (ii) the registration by the Company of a class of securities under
Section 12 of the Exchange Act, the Company agrees to:
(a) make and keep current public information about
the Company available, as those terms are understood and defined in Rule 144;
(b) use its best efforts to file with the Commission
in a timely manner all reports and other documents required of the Company under
the Exchange Act (at any time after it has become subject to such reporting
requirements); and
(c) furnish to any holder of Registrable Shares upon
request (i) a written statement by the Company as to its compliance with the
reporting requirements of Rule 144(c) and of the Securities Act and the Exchange
Act (at any time after it has become subject to such reporting requirements),
(ii) a copy of the most recent annual or quarterly report of the Company, and
(iii) such other reports and
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<PAGE> 13
documents of the Company as such holder may reasonably request to avail itself
of any similar rule or regulation of the Commission allowing it to sell any such
securities without registration.
3. Right Of First Refusal
3.1 Rights of Stockholders
(a) The Company shall not issue, sell or exchange,
agree to issue, sell or exchange, or reserve or set aside for issuance, sale or
exchange, (i) any shares of its Common Stock, (ii) any other equity securities
of the Company, including, without limitation, shares of preferred stock, (iii)
any option, warrant or other right to subscribe for, purchase or otherwise
acquire any equity securities of the Company, or (iv) any debt securities
convertible or exchangeable, directly or indirectly, into or for capital stock
of the Company (collectively, the "Offered Securities"), unless in each such
case the Company shall have first complied with this Section 3.1. The Company
shall deliver to each Stockholder a written notice of any proposed or intended
issuance, sale or exchange of Offered Securities (the "Offer"), which Offer
shall (i) identify and describe the Offered Securities, (ii) describe the price
and other terms upon which they are to be issued, sold or exchanged, and the
number or amount of the Offered Securities to be issued, sold or exchanged,
(iii) identify the persons or entities (if known) to which or with which the
Offered Securities are to be offered, issued, sold or exchanged and (iv) offer
to issue and sell to or exchange with such Stockholder (A) a pro rata portion of
the Offered Securities determined by dividing the aggregate number of shares of
Common Stock then held by such Stockholder (giving effect to the conversion of
all shares of convertible preferred stock then held) by the total number of
shares of Common Stock then outstanding (giving effect to the conversion of all
outstanding shares of convertible preferred stock) (the "Basic Amount"), and (B)
any additional portion of the Offered Securities attributable to the Basic
Amounts of other Stockholders as such Stockholder shall indicate it will
purchase or acquire should the other Stockholders subscribe for less than their
Basic Amounts (the "Undersubscription Amount").
(b) To accept an Offer, in whole or in part, a
Stockholder must deliver a written notice to the Company prior to the end of the
30-day period of the Offer, setting forth the portion of the Stockholder's Basic
Amount that such Stockholder elects to purchase and, if such Stockholder shall
elect to purchase all of its Basic Amount, the Undersubscription Amount (if any)
that such Stockholder elects to purchase (the "Notice of Acceptance"). If the
Basic Amounts subscribed for by all Stockholders are less than the total of all
of the Basic Amounts available for purchase, then each Stockholder who has set
forth an Undersubscription Amount in its Notice of Acceptance shall be entitled
to purchase, in addition to the Basic Amounts subscribed for, the
Undersubscription Amount it has subscribed for; provided, however, that if the
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<PAGE> 14
Undersubscription Amounts subscribed for exceed the difference between the total
of all of the Basic Amounts available for purchase and the Basic Amounts
subscribed for (the "Available Undersubscription Amount"), each Stockholder who
has subscribed for any Undersubscription Amount shall be entitled to purchase
only that portion of the Available Undersubscription Amount as the
Undersubscription Amount subscribed for by such Stockholder bears to the total
Undersubscription Amounts subscribed for by all Stockholders, subject to
rounding by the Board of Directors to the extent it deems reasonably necessary.
(c) The Company shall have 90 days from the
expiration of the 30-day period of the Offer set forth in Section 3.1(b) above
to issue, sell or exchange all or any part of such Offered Securities as to
which a Notice of Acceptance has not been given by the Stockholders (the
"Refused Securities"), but only to the offerees or purchasers described in the
Offer (if so described therein) and only upon terms and conditions (including,
without limitation, unit prices and interest rates) which are not more
favorable, in the aggregate, to the acquiring person or persons or less
favorable to the Company than those set forth in the Offer.
(d) In the event the Company shall propose to sell
less than all the Refused Securities (any such sale to be in the manner and on
the terms specified in Section 3.1(c) above), then each Stockholder may, at its
sole option and in its sole discretion, reduce the number or amount of the
Offered Securities specified in its Notice of Acceptance to an amount that shall
be not less than the number or amount of the Offered Securities that the
Stockholder elected to purchase pursuant to Section 3.1(b) above multiplied by a
fraction, (i) the numerator of which shall be the number or amount of Offered
Securities the Company actually proposes to issue, sell or exchange (including
Offered Securities to be issued or sold to Stockholders pursuant to Section
3.1(b) above prior to such reduction) and (ii) the denominator of which shall be
the original amount of the Offered Securities. In the event that any Stockholder
so elects to reduce the number or amount of Offered Securities specified in its
Notice of Acceptance, the Company may not issue, sell or exchange more than the
reduced number or amount of the Offered Securities unless and until such
securities have again been offered to the Stockholders in accordance with
Section 3.1(a) above.
(e) Upon the closing of the issuance, sale or
exchange of all or less than all of the Refused Securities, the Stockholders
shall acquire from the Company, and the Company shall issue to the Stockholders,
the number or amount of Offered Securities specified in the Notices of
Acceptance, as reduced pursuant to Section 3.1(d) above if the Stockholders have
so elected, upon the terms and conditions specified in the Offer. The purchase
by the Stockholders of any Offered Securities is subject in all cases to the
preparation, execution and delivery by the Company and the Stockholders of a
purchase agreement relating to such Offered Securities reasonably satisfactory
in form and substance to the Stockholders and their respective counsel.
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<PAGE> 15
(f) Any Offered Securities not acquired by the
Stockholders or other persons in accordance with Section 3.1(c) above may not be
issued, sold or exchanged until they are again offered to the Stockholders under
the procedures specified in this Agreement.
(g) The rights of the Stockholders under this Section
3 shall not apply to:
(1) Common Stock issued as a stock dividend
to holders of Common Stock or upon any subdivision or combination of shares of
Common Stock;
(2) the issuance of any shares of Common
Stock upon conversion of shares of convertible preferred stock;
(3) the issuance of up to 1,400,000 shares
of Common Stock, or the grant of options therefor, including shares issued upon
exercise of options outstanding on the date of this Agreement (such number to be
proportionately adjusted in the event of any stock splits, stock dividends,
recapitalizations or similar events occurring on or after the date of this
Agreement), to officers, directors, consultants and employees of the Company or
any subsidiary pursuant to any plan, agreement or arrangement approved by a vote
of not less than a majority of the Board of Directors of the Company (it being
understood that any shares subject to options that expire or terminate
unexercised shall not count towards the maximum number set forth in this
clause(3));
(4) shares of Common Stock sold by the
Company in an underwritten public offering pursuant to an effective registration
statement under the Securities Act;
(5) shares of Common Stock issued upon
exercise of warrants issued in connection with borrowings by the Company
(including lease finance arrangements), and shares of Common Stock (or warrants
therefor) issued in connection with acquisitions, joint ventures and corporate
partnering relationships, in each case after approval by a majority of the
non-employee members of the Board of Directors of the Company, provided that the
recipient of such shares of Common Stock pursuant to this clause (5) is not a
Purchaser, PRP or the Founder, or any affiliate thereof; or
(6) shares of Common Stock issued in any
acquisition of any third party (other than PRP, an entity of which the Founder
owns more than one percent (1%) of the outstanding capital stock, or an entity
of which a Purchaser owns more than fifty percent (50%) of the outstanding
capital stock) by the Company if (but
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<PAGE> 16
only if) the exercise of the rights granted to Stockholders in this Section 3
would jeopardize, in the written opinion of the Company's independent
accountants, the desired accounting of such acquisition as a pooling of
interests.
3.2 Termination. This Section 3 shall terminate upon the
earlier of the following events:
(a) The sale of all or substantially all of the
assets or business of the Company, by merger, sale of assets or otherwise
(except a merger or consolidation in which the holders of capital stock of the
Company immediately prior to such merger or consolidation continue to hold
immediately following such merger or consolidation at least a 66 2/3% by voting
power of the capital stock of the surviving corporation); or
(b) The conversion of all Shares into Common Stock.
4. Negative Covenants. So long as any Shares are outstanding, the
Company shall not, without the prior written consent of the holders of not less
than 66 2/3% of the then outstanding Shares:
(a) authorize any additional shares of Common Stock
or Series A Preferred or authorize or designate any other class or series of
stock in addition to Common Stock and Series A Preferred or senior to, or on a
parity with, the Series A Preferred as to dividends, voting rights, rights upon
liquidation or redemption;
(b) declare or pay any dividends or distributions,
other than dividends payable solely in Common Stock;
(c) sell all or substantially all of its assets or
business, by merger, sale of assets or otherwise, in a transaction pursuant to
which holders of Shares receive cash, securities and/or other consideration
valued at less than $12.30 per share (as adjusted for stock splits, stock
dividends and similar events affecting the Shares or Common Stock);
(d) acquire all or substantially all of the
properties, assets or stock of any other corporation or entity, other than an
acquisition in which the aggregate consideration paid or issued by the Company
is less than the greater of: (i) $20,000,000, or (ii) ten (10) times the net
income of the Company for the four full fiscal quarters immediately preceding
such acquisition;
(e) incur indebtedness for borrowed money at any time
outstanding exceeding in the aggregate the greater of: (i) $12,000,000, or (ii)
five (5) times the net income of the Company for the four full fiscal quarters
immediately preceding such incurrence;
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<PAGE> 17
(f) voluntarily liquidate or dissolve;
(g) amend any provision of, or add any provision to,
the Company's Certificate of Incorporation or By-Laws in a manner which
adversely affects the holders of the Shares; or
(h) apply any of its assets to the redemption,
retirement, purchase or acquisition, directly or indirectly, of any shares of
its Common Stock (other than purchases of Common Stock from employees, directors
or consultants, at cost, upon termination of their employment or services).
5. Transfers of Rights. This Agreement, and the rights and obligations
of each Purchaser hereunder, may be assigned by a Purchaser, PRP or the Founder
to (i) any person or entity to which at least 50% of the Shares then held by
such transferor are transferred by such transferor, (ii) any partner or
stockholder of such transferor, and (iii) any affiliates or members of the
immediate family of such transferor, or trusts for his or their benefit, and
such transferee shall be deemed a "Purchaser," "PRP" or "Founder," as the case
may be, for purposes of this Agreement; provided that the transferee provides
written notice of such assignment to the Company and agrees in writing to be
bound hereby.
6. General.
(a) Severability. The invalidity or unenforceability
of any provision of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement.
(b) Specific Performance. In addition to any and all
other remedies that may be available at law in the event of any breach of this
Agreement, each Stockholder shall be entitled to specific performance of the
agreements and obligations of the Company hereunder and to such other injunctive
or other equitable relief as may be granted by a court of competent
jurisdiction.
(c) Governing Law. This Agreement shall be governed
by and construed in accordance with the internal laws of the Commonwealth of
Massachusetts (without reference to the conflicts of law provisions thereof).
(d) Notices. All notices, requests, consents, and
other communications under this Agreement shall be in writing and shall be
deemed delivered (i) two business days after being sent by registered or
certified mail, return receipt requested, postage prepaid or (ii) one business
day after being sent via a
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<PAGE> 18
reputable nationwide overnight courier service guaranteeing next business day
delivery, in each case to the intended recipient as set forth below:
If to the Company or the Founder, at 280 Summer Street, Boston, MA
02110, Attention: President, or at such other address or addresses as may have
been furnished in writing by the Company to the Purchasers, with a copy to Davis
& Gilbert, 1740 Broadway, New York, New York 10019; attention: Richard S.
Eisert, Esq.; or
If to a Stockholder, at his or its address set forth on Exhibit A, or
at such other address or addresses as may have been furnished to the Company in
writing by such Stockholder, with a copy to Hale and Dorr LLP, 60 State Street,
Boston, MA 02109, attention: Mark G. Borden, Esq.; and Stroock & Stroock & Lavan
LLP, 2029 Century Park East, Suite 1800, Los Angeles, CA 90067; attention:
Richard S. Forman, Esq.
Any party may give any notice, request, consent or other communication
under this Agreement using any other means (including, without limitation,
personal delivery, messenger service, telecopy, first class mail or electronic
mail), but no such notice, request, consent or other communication shall be
deemed to have been duly given unless and until it is actually received by the
party for whom it is intended. Any party may change the address to which
notices, requests, consents or other communications hereunder are to be
delivered by giving the other parties notice in the manner set forth in this
Section.
(e) Complete Agreement. This Agreement constitutes
the entire agreement and understanding of the parties hereto with respect to the
subject matter hereof and supersedes all prior agreements and understandings
relating to such subject matter.
(f) Amendments and Waivers. Any term of this
Agreement may be amended or terminated and the observance of any term of this
Agreement may be waived (either generally or in a particular instance and either
retroactively or prospectively), with the written consent of the Company and the
holders of at least 66 2/3% of the Registrable Shares held by all of the
Stockholders other than the Founder; provided, that this Agreement may be
amended with the consent of the holders of less than all Registrable Shares only
in a manner which affects all such holders in the same fashion, and, provided,
further, for so long as PRP owns at least 2% of the outstanding shares of Common
Stock of the Company (giving assumed effect to the conversion of all outstanding
shares of Preferred Stock of the Company and the exercise of all outstanding
options and warrants to purchase Common Stock), the consent of PRP shall be
required for any waiver of the rights in Section 3.1 hereof with respect to (i)
an issuance of shares to the Purchasers or the Founder, or any affiliate of the
Purchasers or the Founder, (ii) an issuance of shares that would cause PRP to
own less than 2% of the outstanding shares of Common Stock of the Company
(giving
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<PAGE> 19
assumed effect to the conversion of all outstanding shares of Preferred Stock of
the Company and the exercise of all outstanding options and warrants to purchase
Common Stock) and (iii) an issuance of shares that would cause PRP to own less
than 5% of the outstanding shares of Common Stock of the Company (giving assumed
effect to the conversion of all outstanding shares of Preferred Stock of the
Company and the exercise of all outstanding options and warrants to purchase
Common Stock), if and only if PRP owns at least 5% of the outstanding shares of
Common Stock of the Company (giving assumed effect to the conversion of all
outstanding shares of Preferred Stock of the Company and the exercise of all
outstanding options and warrants to purchase Common Stock) immediately prior to
such issuance. Any such amendment, termination or waiver effected in accordance
with this Section 6(f) shall be binding on all parties hereto, even if they do
not execute such consent. No waivers of or exceptions to any term, condition or
provision of this Agreement, in any one or more instances, shall be deemed to
be, or construed as, a further or continuing waiver of any such term, condition
or provision.
(g) Pronouns. Whenever the context may require, any
pronouns used in this Agreement shall include the corresponding masculine,
feminine or neuter forms, and the singular form of nouns and pronouns shall
include the plural, and vice versa.
(h) Counterparts; Facsimile Signatures. This
Agreement may be executed in any number of counterparts, each of which shall be
deemed to be an original, and all of which together shall constitute one and the
same document. This Agreement may be executed by facsimile signatures.
(i) Section Headings. The section headings are for
the convenience of the parties and in no way alter, modify, amend, limit or
restrict the contractual obligations of the parties.
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<PAGE> 20
Executed as of the date first written above.
COMPANY:
STUDENT ADVANTAGE, INC.
By: /s/ Raymond V. Sozzi, Jr.
------------------------------
Name: Raymond V. Sozzi, Jr.
Title: Chief Executive Officer
STOCKHOLDERS:
GREYLOCK IX LIMITED
PARTNERSHIP
By: Greylock IX GP Limited
Partnership, its General Partner
By: /s/ William S. Kaiser
------------------------------
Name: William S. Kaiser
Title: General Partner
/s/ Marc Turtletaub
------------------------------
Marc Turtletaub
PRINCETON REVIEW PUBLISHING, L.L.C.
By: /s/ John Katzman
------------------------------
Name: John Katzman
Title: President
FOUNDER:
/s/ Raymond V. Sozzi, Jr.
------------------------------
Raymond V. Sozzi, Jr.
Address: 75 Clarendon Street, #408
Boston, MA 02116
<PAGE> 21
Exhibit A
Purchasers
Name and Address
Greylock IX GP Limited Partnership
One Federal Street, 26th Floor
Boston, MA 02110
Marc Turtletaub
c/o The Money Store
707 3rd Street
West Sacramento, CA 95605
<PAGE> 1
Exhibit 10.6
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT dated March 25, 1996 between Student Advantage
LLC, a Delaware limited liability company (the "Company"), having an office at
321 Columbus Avenue, Boston, MA 02116 and Raymond V. Sozzi, Jr., an individual
residing at 300 Columbus Avenue, Apartment #2, Boston, MA 02166 ( the
"Executive").
W I T N E S S E T H
WHEREAS, the Princeton Review Publishing, L.L.C., a Delaware limited
liability company ("TPR"), is investing in the Company pursuant to an Investment
Agreement dated the date hereof among the Executive, the Company and TPR (the
"Investment Agreement"), under which TPR is to acquire an interest in the
Executive's Membership Interest in the Company; and
WHEREAS, the Company wishes to employ the Executive as its Chief
Executive Officer and the Executive wishes to accept such employment, all on the
terms hereinafter set forth,
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the adequacy and sufficiency of which are hereby
acknowledged, the parties hereto agree hereby as follows:
1. EMPLOYMENT. The Company hereby employs the Executive as its
Chief Executive Officer, and the Executive hereby accepts such employment,
subject to the terms and conditions hereinafter set forth, under the direction
of the Board of Directors of the Company.
2. TERM. The term of the Executive's employment hereunder shall
be deemed to have commenced on January 1, 1996, shall continue thereafter for a
period of three (3) years, unless terminated earlier in accordance with the
terms hereof.
3. DUTIES.
(a) The duties of the Executive shall be predominantly
executive in nature. The Executive shall serve the Company loyally, faithfully
and to the best of his abilities and shall devote his full working time and
efforts to the performance of his duties hereunder. The Executive shall be
available for travel as the needs of the business of the Company require.
(b) The Executive agrees that he will not, during the term of
this
<PAGE> 2
Agreement, engage in any business activity that interferes with the performance
of his obligations under this Agreement.
4. COMPENSATION AND BENEFITS.
(a) In consideration of the services to be rendered by the
Executive hereunder, the Company shall pay to the Executive, and he shall
accept, base salary payable biweekly or monthly at the Company's option at an
annual rate of $60,000 for the first year hereunder, $75,000 for the second year
hereunder and $90,000 for the third year hereunder.
(b) The Executive shall be entitled to a bonus for each of the
1996, 1997 and 1998 calendar years, to be computed as follows:
(i) 7.5% of the first $100,000 by which the
Company's net income prior to interest, taxes, depreciation and amortization and
before extraordinary items of gains and losses and before bonuses based upon net
income to officers of the Company ("EBITDA") in 1996 (including the results of
operations for Student Advantage Partners for 1996), 1997, and 1998 exceeds the
Company's EBITDA for such year, forecasted by the budget contained in Schedule
5.10 to the Investment Agreement (reflecting the projected acquisition by the
Company of The Passport, Inc.), equal to $146,000 in 1996, $295,000 in 1997 and
$400,000 in 1998 (such excess referred to hereinafter as "Excess Profits");
(ii) 9.375% of Excess Profits between $100,000
and $200,000;
(iii) 11.25% of Excess Profits between $300,000
and $300,000;
(iv) 13.125% of Excess Profits between $200,000
and $400,000;
(v) 15% of Excess Profits between $400,000 and
$500,000; and
(vi) 18.75% of Excess Profits over $500,000;
provided, however, the maximum bonus payable under this Section 4(b) shall not
exceed $150,000 per year.
EBITDA shall be calculated based on generally accepted accounting principles
consistently applied.
(c) The Executive shall receive $500 per month as a cash
allowance for a car or other related expenses.
(d) The Executive shall receive $100 per week as a petty
cash allowance for various expenses.
<PAGE> 3
(e) The Executive shall receive health insurance and paid
holidays, as are made available to management-level employees of the Company.
The Executive shall receive 15 days of paid vacation/personal/sick days each
year. The Executive shall receive, on an annual basis, the total amount of
payments under the Federal Insurance Contributions Act ("FICA"), other sums
payable under Federal revenue withholding guidelines and employment insurance,
including, without limitation, payments under the Federal Unemployment Tax Act
("FUTA") that the Company would have paid had the Executive been treated as a
full-time employee of the Company (the "Company's FICA Share") to the extent
that the Company does not pay the Company's FICA Share.
(f) The Executive shall be entitled to reimbursement for
all reasonable and necessary travel, entertainment and other business expenses
incurred or expended by him necessary for the performance of his duties as an
employee of the Company, subject to a periodic accounting reasonable
satisfactory to the Board of Directors of the Company.
(g) Except as hereinafter provided in Section 6, the
Company shall pay the Executive, for any period during which he is unable fully
to perform his duties because of physical or mental disability or incapacity,
and amount equal to the fixed compensation due him for such period, less the
aggregate amount of all income disability benefits that he received under or by
reason of (i) any group health insurance plan; (ii) any applicable compulsory
state disability law; (iii) the Federal Social Security Act; (iv) any applicable
worker's compensation law or similar law; and (v) any plan towards which the
Company or any parent, subsidiary or affiliate of the Company has contributed,
such as group accident or health policies.
(h) In the event that all of the executive officers of
the Company and its affiliates agree to accrue a portion of their salaries and
bonus to improve cash flow, then the Executive's compensation hereunder shall be
accrued pro rata on the same terms and conditions as is reasonably required.
(i) The Executive shall also receive options to purchase
870 Units of membership interests of the Company.
5. COVENANTS.
(a) The Executive agrees that all work produced by him
under this Agreement shall be deemed to be a "work made for hire" as defined in
the federal Copyright Act, Title 17 of the United States Code. Without further
consideration, the Executive hereby irrevocably assigns, transfers and sets over
to the Company, its successors and assigns, all of the Executive's right, title
and interest in and to any and all developments, processes, discoveries,
technologies and creations and all copyrightable and patentable works, materials
and ideas (collectively "Intellectual
<PAGE> 4
Property") and any improvement to any Intellectual Property, whether or not
patentable, copyrightable or legally protectible or recognized forms of
property, and whether or not completed or used in practice, together with all
information and data relating hereto (hereinafter "Proprietary Information")
(including all designs, drawings, prints, patterns, sketches, ideas, inventions,
improvements, writings and other works of authorship, theses, books, computer
programs, lectures, illustrations, photographs, scientific and mathematical
models, prints and any other subject matter that is or may become legally
predictable or recognized as a form of property) that have been conceived, made
or suggested, or may hereafter be conceived, made or suggested, either by the
Executive or by others with the assistance or other participation of the
Executive, relating to the business of the Company or any affiliate of the
Company.
(b) The Executive shall disclose promptly to the Company
any and all Proprietary Information when conceived or made by the Executive, and
report promptly to the Company all information of which the Executive may become
aware during the term of employment with the Company that may be of benefit to
the Company. During the period of his employment hereunder, the Executive shall
also disclose promptly to the Board of Directors of the Company all material
Intellectual Property relating to the business, products, or projects of the
Company and/or involving the use of the Company's time, materials and/or
facilities.
(c) Upon the request of the Company, the Executive shall,
without compensation other than the Executive's usual and customary salary,
bonus and benefits hereunder, execute all such assignments and other documents
and perform all such acts necessary to enable the Company to obtain or uphold
for its benefit patents or copyrights for, and other rights to, such
Intellectual Property and accumulated data and other information relating
thereto, which shall be owned by the Company, whether or not the Executive is
the creator thereof.
6. DISABILITY AND DEATH.
(a) If the Executive, due to physical or mental
disability or incapacity, shall have been unable fully to perform his duties
hereunder for any 60 days during any twelve (12) consecutive months, as
determined in good faith by the Board of Directors, then the Company may
terminate this Agreement and the Executive's employment hereunder by written
notice to the Executive or his legal guardian, effective immediately upon
delivery of such notice.
(b) If the Executive shall die during the term of this
Agreement, this Agreement and the Executive's employment hereunder shall
terminate immediately upon the Executive's death.
7. TERMINATION OF EMPLOYMENT.
<PAGE> 5
The Company may at any time terminate this Agreement and the
Executive's employment hereunder by written notice to the Executive effective
immediately upon delivery of such notice:
(a) if the Executive shall commit any act whether or not
involving the Company that constitutes a felony in the jurisdiction involved; or
(b) if the Executive engages in repeated substance abuse;
or
(c) if the Board of Directors, after due inquiry and
providing the Executive with a reasonable opportunity to be heard, shall have
determined in good faith that the Executive has committed wilful malfeasance or
gross misconduct in his performance hereunder, or any material act of fraud or
dishonesty against the Company; or
(d) if the Executive shall have committed a material
breach of this Agreement; or
(e) upon the sale of all, or substantially all, of the
assets of the Company; or
(f) upon the dissolution and liquidation of the Company.
8. NON-DISCLOSURE OF CONFIDENTIAL
INFORMATION AND NON-COMPETITION.
(a) The Executive acknowledges that he has been informed
that it is the policy of the Company (hereinafter defined for the purposes of
this Section 8(a)) to maintain as secret and confidential all information (i)
relating to the products, processes, technologies, designs and/or systems used
by the Company and (ii) relating to the suppliers, customers and employees of
the Company (all such information hereafter referred to as "Confidential
Information"), and the Executive further acknowledges that such Confidential
Information is of great value to the Company. The parties hereto recognize that
the services to be performed by the Executive are special and unique, and that
by reason of his employment by the Company, he has and will acquire Confidential
Information as aforesaid. The parties hereto confirm that it is reasonably
necessary to protect the Company's good will that the Executive agree, and
accordingly the Executive does agree, that he will not directly or indirectly
(except where authorized by the Board of Directors of the Company for the
benefit of the Company), for or on behalf of himself or any Person (hereinafter
defined):
(i) at any time during his employment by the
Company or after he ceases to be employed by the Company for any reason, divulge
to any Person other than the Company (hereinafter referred to collectively as a
"third party"), or use or
<PAGE> 6
cause to authorize any third parties to use, any such Confidential Information,
or any other information regarded as confidential and valuable by the Company
that he knows or should know is regarded as confidential and valuable by the
Company (whether or not any of the foregoing information is actually novel or
unique or is actually known to others); or
(ii) at any time during his employment by the
Company and for a period of two years after he ceases to be employed by the
Company for any reason, act as or be an officer, director, stockholder,
consultant or advisor, partner or employee or, or render any service for, or
have any profit-sharing or other interest in, or lend money or make any other
financial accommodation for or on behalf of, or undertake any business
transaction with, any Person that engages in or is planning or preparing to
engage in either direct competition with the Company or any corporate affiliate
of the Company, or the business of providing, in any state where the Company or
any corporate affiliate sells products or performs services, the same products
and/or services as those provided by the Company or any corporate affiliate,
except that he may hold securities that are part of a publicly traded class of
securities (not in excess of 5% of the outstanding total of any class of such
securities) in competitive concerns so long as he discloses such holding to the
Company; or
(iii) at any time during his employment by the
Company and for a period of two years after he ceases to be employed by the
Company for any reason, engage in or plan or prepare to engage in (A)
competition with the Company or any corporate affiliate or (B) the business of
providing, in any state where the Company of any corporate affiliate sells
products or performs services, the same products and/or services as those
provided by the Company and corporate affiliate; or
(iv) at any time during his employment by the
Company and for a period of two years after he ceases to be employed by the
Company for any reason, (A) attempt in any manner to solicit, or instruct,
assist or provide any services in connection with the solicitation, from any
Person that is, or shall have been after the date hereof, a client or a sponsor
of the Company or any affiliate of the Company (collectively, a "Client")
(except on behalf of the Company), or persuade, or attempt in any manner to
persuade, any Client to cease doing business or to reduce the amount of business
that any such Client has customarily done or contemplates doing with the company
or any affiliate of the Company, or (B) serve as an officer, director, employee,
agent or consultant of, or otherwise render services to, or become or remain a
creditor or equity interests holder in, any Person that accepts business
competitive with the business of the Company from any such Client, whether or
not the relationship between the Company and such Client was originally
established in whole or in part through the efforts of the Executive; or
(v) at any time during his employment by the
Company and for a period of two years after he ceases to be employed by the
Company for any reason, employ or otherwise obtain services from, or solicit or
otherwise attempt to employ or
<PAGE> 7
otherwise obtain services from, or assist any Person in employing or otherwise
obtaining services from, or attempting to employ or otherwise obtain services
from, any person who is then, or at any time during the preceding twelve months
shall have been, in the employ of or retained by the Company and/or its
affiliates; or
(vi) at any time during his employment by the
Company and the applicable period thereafter specified in each of the clauses
above, negotiate for or enter into an agreement, understanding or arrangement,
or otherwise cause or authorize any Person, to take any of the actions
prohibited by such clause.
As used herein in this Section 8(a), the term "Person" means any person,
corporation, limited liability company, partnership or other entity, the term
"Company" shall include any of its affiliates, and the term "Client" shall mean
(i) anyone who is then a client of the Company or an of its affiliates, (ii)
anyone who was a client, sponsor or supplier of the Company or any of its
affiliates at any time during the two-year period immediately preceding the
alleged prohibited conduct, and (iii) any prospective sponsor or supplier that
shall have entered into negotiations with the company.
(b) The Executive shall, upon the expiration of his
employment by the Company for any reason, forthwith deliver up to the Company
any and all drawings, notebooks, keys and other documents and materials, or
copies thereof, in his possession or under his control that relate to any
Confidential Information, including any of same that relate to any Invention
relating to the business of the Company or any affiliates of the Company
described in Section 5(a), or that are otherwise the property of the Company.
This Section 8 and Section 5(c) shall survive any expiration or other
termination of this Agreement.
(c) The Executive agrees that any breach or threatened
breach by him of any provision of this Section 8 will, because of the unique
nature of the Executive's services and the Confidential Information entrusted to
him as aforesaid, cause irreparable harm to the Company and shall entitle the
Company, in addition to any other legal remedies available to it, to apply to
any court of competent jurisdiction to enjoin such breach or threatened breach,
without the need to show irreparable injury or to post any bond, which are
hereby waived by the Executive. The parties hereto understand and intend that
each restriction agreed to by the Executive hereinabove shall be construed as
separable and divisible from every other restriction, and the unenforceability,
in whole or in part, of any such restriction, in any jurisdiction, shall not
effect the enforceability of such restriction in any other jurisdiction or of
the remaining restrictions in any jurisdiction, and that one or more or all of
such restrictions may be enforced in whole or in part as the circumstances
warrant. The Executive further acknowledges that the Company is relying upon
such covenants as an inducement to provide the Executive with employment and in
connection therewith to permit the Executive to have continued access to
Confidential Information.
<PAGE> 8
9. Entire Agreement. This Agreement, together with the Investment
Agreement, the Company's Operating Agreement and the documents and instruments
referred to therein, contains the entire understanding of the parties with
respect to the subject matter hereof and supersedes any prior agreement between
the parties. No change, termination or attempted waiver of any of the provisions
hereof shall be binding unless in writing and signed by the party against whom
the same is sought to be enforced. No action by either party shall be deemed a
waiver of any right hereunder, and no waiver of any right at any time shall
operate as a waiver of any other right or as a waiver of such right at any other
time.
10. Successors and Assigns. This Agreement shall be binding upon
and shall inure to the benefit of the respective heirs, legal representatives,
successors and assigns of the parties hereto, except that this agreement may not
be assigned by the Executive, or by the Company except to an affiliate of the
Company, in which case the Company shall remain liable for all of its
obligations hereunder.
11. Governing Law. All matters concerning the validity and
interpretation of and performance under this Agreement shall be governed by the
laws of the State of New York.
12. Designations and Notices. Whenever notice is required to be
given by any party hereunder, such notice shall be deemed sufficient if given
pursuant to the terms of the Investment Agreement.
13. Severability. The invalidity or unenforceability of any
particular provision of this Agreement in any jurisdiction shall not affect the
other provisions hereof or such provision in other jurisdictions, and this
Agreement shall be construed in such jurisdiction in all respects as if such
invalid or unenforceable provisions were omitted. Furthermore, in lieu of such
illegal, invalid, or unenforceable provision in such jurisdiction there shall be
added automatically as a part of this Agreement a provision as similar in terms
to such illegal, invalid, or unenforceable provision as may be possible and be
legal, valid and enforceable.
14. Construction. Throughout this Agreement, each pronoun shall be
deemed to include the masculine, the feminine and the neuter, the singular and
plural, and vice versa, where such meanings would be appropriate. The headings
herein are inserted only as a matter of convenience and reference, and they in
no way define, limit or describe the scope of this Agreement or the intent of
any provisions thereof.
15. Further Assurances. Each party shall execute such other
documents and instruments as shall be requested by the other party in order
fully to accomplish the purposes of this Agreement.
16. Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument.
<PAGE> 9
IN WITNESS WHEREOF, the Executive has executed this Agreement and the
Company has caused this Agreement to be executed by its duly authorized officer
as of the date first above written.
STUDENT ADVANTAGE LLC
/s/ Raymond V. Sozzi, Jr. By: /s/ Raymond V. Sozzi, Jr.
- ----------------------------- -----------------------------
RAYMOND V. SOZZI, JR. Name: Raymond V. Sozzi, Jr.
Title: President
<PAGE> 10
FIRST AMENDMENT OF EMPLOYMENT AGREEMENT
This Amendment dated as of October 20, 1998 (the "Amendment") amends that
certain Employment Agreement between Student Advantage, LLC (the "Company") and
Raymond V. Sozzi, JR. ("Executive") dated as of March 25, 1996 (the
"Agreement"). Unless otherwise provided in this Amendment, capitalized terms
shall have the same definitions as given in the Agreement.
To facilitate additional financing and investments in the Company and for the
other good and valuable consideration, and adequacy and sufficiency of which are
hereby acknowledged, parties agree to amend the Agreement effective as of
January 1, 1999 as follows:
I. Section 2 of the Agreement ("Term") is amended by adding the following
sentence at the end of the Section:
"At the expiration of the term (including any renewal terms), this Agreement
shall automatically renew for additional one year terms, unless terminated
earlier in accordance with the terms hereof."
II. Section 3 of the Agreement ("Duties") is amended by adding the
following as subsection 3(c):
"(c) The Executive shall perform such additional duties as the Board of
Directors of the Company may vest in him from time to time."
III. Section 4 of the Agreement ("Compensation and Benefits") is amended as
follows:
A. The following sentence is added at the end of subsection 4(a): "For
each year thereafter while this Agreement remains in effect, Executive's base
salary shall be $150,000."
B. Section 4(b)(i) of the agreement is amended to add the following text:
"With respect to each calendar year after 1998, Executive shall be entitled to a
bonus as a target level of $75,000 as determined in the discretion of the Board
of Directors of the Company. With respect to Calendar years 1997 and 1998, it is
agreed that in light of the Company's change in accounting procedures, the
Executive shall be entitled to receive the maximum bonus applicable under this
Agreement."
C. The following provision is added as section 4(j) of the Agreement:
"(j) Anything in this Agreement to the contrary notwithstanding, if it
shall be determined that any amounts paid to the Executive by the Company
hereunder (each a "Subject Payment") would be subject to the excise tax (the
"Excise Tax") imposed by
<PAGE> 11
Section 4999 of the Internal Revenue Code of 1986, as amended (the"Code"), then
the Executive shall be entitled to receive from the Company an additional
payment (the "Gross-Up Payment") in an amount such that the net amount of the
Subject Payment and Gross-Up Payment retained by the Executive, after the
calculation and deduction of all Excise Taxes (Including any interest or
penalties imposed with respect to such taxes) on the Subject Payment and all
federal, state and local income tax, employment tax and Excise Tax (including
any interest or penalties imposed with respect to such taxes) on the Gross-Up
Payment provided for in this Section 4(j), shall be equal to the Subject
Payment.
D. It is hereby agreed and acknowledged that Executive has received and
exercised as of 1/1/97 the options to purchase 870 Units of membership as
specified in Section 4(i) of the Agreement and that no further compensation is
due Executive under Section 4(i) of the Agreement.
IV. Section 6 ("Disability and Death") of the Agreement is amended to add
the following new section 6(c):
"(c) In the event of any termination pursuant to this Section 6, the Company
shall (i) continue to provide Executive (or his heirs or designees) compensation
and benefits as set forth in Section 4 of this Agreement until the end of the
calendar year in which the notice of termination is effective and (ii) pay
Executive (or his heirs or designees) bonus payments at the fixed rate of
$75,000 per year for the year in which termination takes place and pro rated as
of the date of Executive's death or disability (i.e., $75,000 multiplied by the
fraction equal to the number of days the Executive worked during the year of
termination divided by 365)."
V. Section 7 ("Termination of Employment") of the Agreement is amended to
add the following new subsections 7(g), 7(h), 7(i), and 7(j):
"(g) If Executive is terminated by the Company for any reason other than as
permitted in Subsections 7(a) through 7(f) or if the Executive terminates this
Agreement pursuant to Section 7(h) below, then Executive shall be entitled to
the following benefits and compensation for 18 months after termination (the
"Severance Period"): (i) base pay payable in accordance with Section 4 above
and in accordance with the Company's normal payroll procedures, (ii) bonus
payment at the fixed rate of $75,000 per year for each calendar year or portion
thereof ending during the Severance Period and payable pursuant to the Company's
normal payroll practices with respect to bonus payments; (iii) continued
participation in all employee benefits throughout the Severance Period; and (iv)
such outplacement services as are customarily given by the Company. In addition,
the Executive shall be entitled to full vesting of any stock options in the
Company held by the Executive as of the effective date of termination. The
compensation and benefits set forth in this Section 7(g) will be retained by the
2
<PAGE> 12
Executive as liquidated damages in lieu of all damages and remedies and in
complete discharge and satisfaction of any and all obligations or liability to
Executive."
"(h) If within one year of a "Change in Control" (as defined below) of the
Company there occurs a material diminution in the Executive's position,
authority, duties or responsibilities or the assignment to the Executive of
duties which as inconsistent in any respect with his position (including status,
offices, titles and reporting requirements), authority, duties or
responsibilities, and if such diminution is not cured (if capable of being
cured) within 10 business days of notice to the Company by the Executive; then
the Executive shall be entitled to terminate this Agreement effective upon the
giving of writing notice to the Company."
"(i) For purposes of this Agreement, "Change in Control" means the occurrence of
any one of the following events: (i) any sale, transfer or other conveyance
(other than to the Company or a wholly-owned subsidiary of the Company), whether
direct or indirect, on a consolidated basis, in one transaction or a series of
related transactions, of (A) all or substantially all of the assets of the
Company or (B) the capital stock of the Company, if, immediately after such
transaction(s), any "person" or "group" (as such terms are defined below)
becomes the "beneficial owner" (as defined below), directly or indirectly, or
more than 50% of the "Voting Stock" (as defined below) then outstanding entitled
to vote in the election of directors, managers, or trustees of the transferee;
or (ii) any "person" or "group" is or becomes the "beneficial owner," directly
or indirectly, or more than 50% of the Voting Stock then outstanding."
(j) For the purposed of this Agreement, (i) the terms "person" or "group" shall
have the meanings used for purposes of Rules 13d and 13d-5 of the Securities
Exchange Act of 1934 (the "Exchange Act"), whether or not applicable, provided
that no "Excluded Person" (as defined below) and no person or group controlled
by any Excluded Person shall be deemed to be a "person" or "group"; (ii) the
term "beneficial owner" shall have the meaning used in Rules 13d-3 and 13d-5
under the Exchange Act, whether or not applicable, except that a person shall be
deemed to have "beneficial ownership" of all shares that any such person has the
right to acquire, whether such right is exercisable immediately or only after
the passage of time or upon the occurrence of certain events; (iii) "Voting
Stock" means the capital stock of the Company; and (iv) "Excluded Person" means
Raymond V. Sozzi, Jr.
3
<PAGE> 13
It is agreed and acknowledges that other than as expressly set forth in this
Amendment, the terms of the Agreement remain in full force and effect.
Accepted Accepted
STUDENT ADVANTAGE LLC
/s/ Raymond V. Sozzi, Jr. By: /s/ Raymond V. Sozzi, Jr.
- ---------------------------- ----------------------------
Raymond V. Sozzi, Jr
Title: President
4
<PAGE> 1
Exhibit 10.10
LEASE
by and between
RETALS, LTD.
(LANDLORD)
and
STUDENT ADVANTAGE, LLC
(TENANT)
February ____, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
1. Premises. ................................................................4
2. Use ......................................................................5
3. Term .....................................................................5
4. Basic Rent; Security Deposit .............................................5
5. Real Estate Tax ..........................................................6
6. CPI Clause ...............................................................7
7. Improvements .............................................................7
8. Billing ................................................................. 8
9. Payment on Account ...................................................... 8
10. Late Payment ............................................................ 8
11. Brokerage ............................................................... 8
12. Property of Tenant ...................................................... 9
13. Maintenance and Repair. ................................................. 9
14. Prohibited Items ........................................................10
15. Services ................................................................11
16. Inspection ..............................................................12
17. Casualty. ...............................................................12
18. Condemnation - Eminent Domain. ..........................................13
19. Injury and Damage. ......................................................15
20. Indemnification. ........................................................15
21. Insurance ...............................................................15
22. Mutual Waiver of Subrogation.............................................17
23. Assignment, Mortgaging and Subletting ...................................18
</TABLE>
-2-
<PAGE> 3
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
24. Default .................................................................20
25. Landlord's Right to Cure. ...............................................22
26. Subordination/Rights of Mortgagees ......................................22
27. Surrender of Possession; Holdover .......................................23
28. Notices .................................................................24
29. Rules and Regulations ...................................................24
30. Quiet Enjoyment .........................................................24
31. Limitation of Landlord's Liability ......................................25
32. Binding Agreement .......................................................25
33. Notice of Lease..........................................................25
34. Estoppel Certificate ....................................................25
35. General Provisions ......................................................26
36. Standards for Landlord's Performance ....................................27
37. Lien Waivers ............................................................27
38. Option to Extend and Expand .............................................27
39. Parking. ................................................................29
40. Compliance with Law .....................................................29
Signatures ..............................................................30
Exhibit A - Cleaning Service ............................................31
Exhibit B - Rules and Regulations .......................................33
Consent of Member's Meeting .............................................34
Exhibit C - Resolutions .................................................35
Exhibit D - Improvements ................................................36
Clerk's Certificate .....................................................38
</TABLE>
-3-
<PAGE> 4
LEASE
This Lease is made and entered into as of this ___ day of February, 1998 by and
between Retals, LP with an address c/o Teel Realty, 1955 Commonwealth Avenue,
No. 1, Brighton, MA 02135-5923 (the "LANDLORD" or "LESSOR") Student Advantage,
LLC., a Delaware corporation, with an address at 321 Columbus Avenue, Boston, MA
02116 (the "TENANT" or "LESSEE").
This Lease shall be effective as of the "EFFECTIVE DATE" (see SECTION 3) which
is anticipated to be between April 1, 1998 and April 21, 1998, provided the
Premises are delivered in substantial completion as provided in Section 7 of
this Lease. Not withstanding that Effective Date has not occurred, this Lease
shall be a binding agreement between the parties from and after the date hereof.
1. PREMISES.
1.1 In consideration of the rents and covenants herein stipulated to be paid and
performed by Tenant and upon the terms and conditions herein specified, Landlord
hereby leases to Tenant, and Tenant hereby hires and takes from Landlord a
portion of the building located at 280 Summer Street in Boston, Massachusetts
(the "BUILDING"), and said leased portion containing 21,167 rentable square feet
("RSF"), (the "PREMISES"). The RSF for the aforementioned Premises and for the
respective portions of said Premises, which are more particularly referred to
hereafter, are agreed figures for all purposes. The Premises are more
particularly described as follows: 5214 RSF on the mezzanine level being space
currently occupied by National TechTeam (which may hereafter be referred to as
space or portion "A"), 2972 RSF on the mezzanine level being space last occupied
by Olsen plus certain adjacent present corridor space (which may hereafter be
referred to as space or portion,"B"), and 12981 RSF on the street/lobby level
being space last occupied by Lehman Millet (which may hereafter be referred to
as space or portion "C"), excepting the common areas on these floors, (the
"PREMISES").
1.2 The Premises are Leased together with the right of Tenant to use for its
customers, employees and visitors, in common with others entitled thereto, such
common areas and facilities in or appurtenant to the Building as Landlord may
from time to time designate and provide, provided, however that Landlord
reserves the right from time to time, without unreasonable interference with
Tenant's use of the Premises, (i) to install, repair, replace, use, maintain,
alter and relocate for service to the Premises and to other parts of the
Building, service fixtures, pipes, ducts, and equipment wherever located in the
Building or the Premises and (ii) to alter or relocate any other common
facility, provided that substitutions therefor are substantially equivalent or
better or necessary and pipes, service fixtures and ducts shall be concealed in
walls wherever possible and appropriate. Tenant shall allow access to and
through Tenant's rented space for emergency use or any use required by
Governmental rules, laws, regulations or other requirements, including those of
City, State, and Federal authorities.
1.3 All the perimeter walls of the Premises except the inner surfaces thereof,
any balconies, terraces or roofs adjacent to the Premises, and any space in or
adjacent to the Premises used for serving other portions of the Building
exclusively or in common with the Premises, including without limitation (where
applicable) shafts, stacks, pipes, conduits, wires and appurtenant fixtures fan
rooms, ducts, electric or other utilities, sinks or other Building facilities,
and the use
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thereof, as well as the right of access through the Premises for the
purpose of operation maintenance, decoration and repair, are expressly reserved
to Landlord.
2. USE. Tenant may use the Premises for office purposes, and for such other
purposes as Landlord reasonably may approve in writing, provided that such other
use is consistent with the character of comparable office space in the so-called
Fort Point Channel area of Boston. Such use and occupation shall at all times be
in compliance with all applicable laws, ordinances, rules and regulations of any
governmental authority. Tenant shall not use, permit or suffer anything to be
done in the Premises or anything to be brought into or kept in the Premises, in
either case, which occasions discomfort or annoyance to any other tenants or
occupants of the Building or which in Landlord's reasonable judgment may tend to
impair the reputation or appearance of the Building or tend to interfere with
the proper and economic operation of the Building by Landlord. Tenant shall not
bring or permit to be brought into or keep in or on the Premises or elsewhere in
the Building, any inflammable, combustible or explosive fluid, material,
chemical or substance, or cause any odors to emanate from or permeate the
Premises. Lessor shall provide to Lessee access to the Premises prior to
Effective Date to install phone system, network, and other essential systems and
materials.
3. TERM. Subject to the terms, covenants, agreements and conditions contained
herein, Tenant shall have and hold the Premises for an initial term (the "TERM")
of approximately seven (7) years and one (1) month for the lobby level space
(C), and approximately five (5) years and one (1) month for the mezzanine level
portion of the premises (spaces A and B), commencing on the Effective Date,
which date shall be the later of (a) the date of delivery of the Premises in
substantial completion of the work outlined in Section 7 or (b) April 21, 1998,
or as early as April 1, 1998 if Premises are delivered in substantial completion
of the work outlined in SECTION 7; the seven (7) year and one (1) month term for
the lobby level portion of the Premises shall expire at midnight on the last day
of the calendar month immediately following the seventh anniversary of the
Effective Date, unless sooner terminated or extended pursuant to this Lease; the
five (5) year and one (1) month term for the mezzanine level portion of then
Premises shall expire at midnight on the last day of the calendar month
immediately following the fifth anniversary of the Effective Date, unless sooner
terminated or extended pursuant to this Lease.
4. BASIC RENT; SECURITY DEPOSIT. Tenant covenants to pay to Landlord during the
Term of this Lease, fixed annual rent (such fixed rent is hereinafter called the
"BASIC RENT") as follows:
4.1
<TABLE>
<CAPTION>
Location $ per RSF # RSF $ per Year $ per Month
-------- --------- ----- ---------- ------------
(Annualized)
<S> <C> <C> <C> <C> <C> <C>
* Year 1 Lobby "C" $23.00 12,981
Mezzanine "A" $17.00 5,214
Mezzanine "B" $ 8.50 2,972 $412,463 $34,371.92
(As of May 15)
Years Lobby "C" $23.00 12,981
2 to 5
Mezzanine $17.00 8,186 $437,725 $36,477.08
"A" + "B"
** Years Lobby $26.00 12,981 $337,506 $28,125.50
6 & 7
</TABLE>
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<PAGE> 6
* In the first year, the Rent for the lobby level (space C) shall begin
between April 1, 1998 and April 21, 1998, subject to 4.2 below, so that the
monthly rent until May 15,1998 shall be $24,880.25; and the Rent for the
mezzanine spaces A and B shall begin on May 15, 1998, so that the monthly
Rent shall then be $34,371.92.
** If Lessee exercises his option for the 8,186 mezzanine level space, the
yearly Rent for years 6 and 7 shall increase by $139,162 ($17 per RSF)
which would bring the total yearly Rent for each of the years 6 and 7 to
$476,668, and the per month Rent in years 6 and 7 to $39,722.33.
4.2 The annual Basic Rent is as per SECTION 4.1 above and shall commence on the
Effective Date and shall be payable monthly in advance in the amounts as per
SECTION 4.1 above. Landlord shall use best efforts to deliver Premises as per
the dates in this section; however, if any space within the Premises cannot be
delivered with build-outs and other improvements substantially in accordance
with those outlined in Exhibit D hereto for any reason, including holdover of a
Tenant currently occupying said space, then Tenant's obligation to pay rent on
such space shall be delayed accordingly, with pro rata adjustments made on a per
diem basis. In the event of a holdover as above, Lessor shall diligently
prosecute legal proceedings in order to obtain the Premises for delivery to
Lessee. Lessor shall use best efforts to have Space A vacated by current
occupant by April 1, 1998, (which is one month before lease expiration for
current Lessee of said space). Notwithstanding any other provision herein, in
the event that Space A cannot be delivered to Lessee on or before April 1, 1998,
then Tenant's obligation to pay rent on spaces A and B shall not commence until
six (6) weeks after the date Space A is delivered to Tenant or when Tenant takes
occupancy if sooner.
4.3 The applicable Basic Rent is payable in twelve equal monthly installments,
in advance, on the first day of every calendar month, provided that if the Term
begins or ends on a day other than the first or last day of a calendar month,
the installment of Rent payable on the first day of the Term, or the first day
of the last calendar month of the Term shall be prorated for such first or last
partial month on the basis of a 365 day year. Tenant will pay the Basic Rent
without counterclaim, set-off, deduction or demand to Landlord at its address
set forth above, or at such other place as is designated in writing from time to
time by Landlord. Receipt is hereby acknowledged of the sum of $70,849.00 which
is payment for the first full month's rent and for the 13th month's rent for the
Premises ($34,371.92 + $36,477.08).
4.4 The security deposit shall be $36,477.08 (the "SECURITY DEPOSIT"), receipt
of which is hereby acknowledged. If Tenant leases any further space in addition
to the Premises in the Building, the Security Deposit shall be increased by
one-twelfth (1/12) of the yearly rent for any such new space. If Tenant defaults
in its obligations under this Lease, and such default is not cured within the
applicable notice and cure period then Landlord may apply any portion of the
Security Deposit to cure the default, and the balance of the Security Deposit,
if any, shall be held as security for the prompt payment and performance of
Tenant's obligations under the Lease. Landlord shall not be obligated to
segregate said security deposit and Lessor shall pay interest to Tenant at a
rate of two (2) percent per annum, payable yearly within a reasonable time after
the anniversary of the Effective Date. Tenant shall be obligated to pay to
Landlord promptly any amount applied by Landlord hereunder, so that the Security
Deposit shall always be fully funded to the amount set forth above.
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<PAGE> 7
5. REAL ESTATE TAX. In addition to the basic rent payments as aforesaid, Lessee
shall pay, if due, additional rent payments for real estate taxes. If in any
period commencing with July 1, 1998 (Fiscal Year 1999) the real estate taxes on
the land and building of which, the leased Premises are a part, are in excess of
the amount of real estate taxes thereon for Fiscal year 1998, hereinafter called
the base year, Lessee will pay to lessor as additional rent hereunder, when and
as designated by notice in writing by Lessor, 15% of such excess that may occur
in each year of the term of this Lease and any extensions thereafter, and
proportionately for any part of a fiscal or calendar year. Percentage
adjustment(s) shall proportionately be made, if necessary or appropriate, to
account for the amount of space occupied by Lessee during any year, so that for
example if spaces A and B were not occupied for a given year, the percentage of
excess Lessee would be responsible for would be reduced from 15% to 9%. Lessor
shall waive the first six (6) month's period bill for Lessee's share of real
estate tax increases (if any), as may become due per this section. Nothing
herein shall change the intent that the base year for computation throughout the
Term of this Lease and any extensions shall remain fiscal year 1998. If the
Lessor obtains an abatement of any such excess real estate tax and where the
lessee has paid excess real estate tax share over real estate base year tax
under this formula, Lessor shall refund proportionately to Lessee one-half of
such pro-rated excess abated real estate taxes; this is agreed to for simplicity
to allow for Lessor's or third Party services and/or expenses to obtain any such
abatements. The base year is fiscal year 1998 as assessed, without regard to any
abatements that may be obtained for said fiscal year 1998. These payments shall
be payable as per clauses 8, 9, and 10.
6. CPI CLAUSE. In lieu of an operating expense and inflation clause and for the
period commencing with April 1, 1998, during the term of the Lease and
extensions thereafter, the National Consumer Price Index "U' Series (hereinafter
"CPI") shall be used. For identification this series was 159.1 for January 1997,
(1982 - 1984 = 100 and as this may be adjusted hereafter by the U.S.
Government). The most recent monthly index prior to commencement of the Lease
shall be used as the base period index CPI for all calculation purposes
throughout the term of this lease and extensions. The amount to be paid by
Lessee will be 25% of the increase in the future CPI index (numerator) over the
base CPI index (denominator), figured as a percentage, and then multiplied by
the then current Rent. These payments shall be payable as per clauses 8, 9, and
10.
7. IMPROVEMENTS. Landlord shall paint and carpet and replace damaged 'gypcrete'
floor (where necessary) on the lobby floor portion (space C) of the Premises.
The mezzanine level portion A space currently occupied by National TechTeam is
being taken "as is" with any work the sole responsibility of Tenant allowing for
normal wear and tear and assuming no extraordinary damage. In the mezzanine
level portion B of the Premises, space last occupied by Olsen Images the
Landlord shall paint and carpet and incorporate hallway. Landlord shall also
contribute fifty percent (50%) of the cost of additional improvements up to a
total contribution by Landlord of twenty thousand dollars ($20,000). For clarity
this $20,000 is in addition to the paint, carpet and floor repairs referred to
above. These additional improvements shall be performed by Lessor, Lessor's
employees or agents, or contractors hired by Lessor, and paid for in accordance
with this SECTION 7 and shall be as per attached plan(s) and/or descriptions in
Exhibit D, as it may be changed by written agreement of both Lessor and Lessee.
Lessee shall have the right to choose whoever does the improvements, Lessor's
employees and contractors ("CHOICE 1") or an outside contractor of Lessees
choosing ("CHOICE
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<PAGE> 8
2") (and choice 2 is subject to reasonable approval by Lessor); if Lessee elects
choice 1 then Lessor shall charge Lessee cost plus 10 percent for all work,
except for invoiced material such as the doors and ceiling tiles which shall be
charged at actual costs; if Lessee elects choice 2 then notwithstanding anything
in this Lease to the contrary including the provisions of SECTION 3 and SECTION
7, then the rent shall begin for the lobby floor portion (space C) by May 1,
1998 regardless of status of completion of the improvements to said premises.
Payment to Lessor shall be on a mutually agreed schedule and in any event shall
be paid in full upon issuance of a certificate of occupancy. Paint color is to
be uniform throughout each portion (A, B, C) of the Premises and colors may be
chosen by Lessee from samples provided by Lessor (paint to be Benjamin Moore or
comparable quality); carpet to be chosen by Lessee from building standard sample
books provided by Lessor. Lessor shall additionally contribute up to ten
thousand (10,000) dollars for HVAC, electrical fire and sprinkler plans, which
shall be paid directly by Lessor to architects and/or engineers. Landlord shall
provide at his expense an intercom system connected to the front door of the
Building to each portion of the Premises; Lessor shall also provide one
staircase between space C and the mezzanine level of the Premises, but not the
installation or floor cutting. All work done in the Premises shall be of the
quality and appearance consistent with the rest of the Building. Completion of
any work planned or agreed to by Lessor and/or Lessee is contingent upon
governmental approval, if applicable or required. Prior to undertaking
additional work within the Premises Lessee shall obtain Landlord's prior written
permission, which permission shall not be unreasonably withheld. Receipt of such
permission may be contingent on Lessee agreeing to certain conditions, for
example that Lessee comply with all governmental permitting and regulations,
that the work be completed in a good and workmanlike manner.
8. BILLING. Time and period of Billing, whether annual, semi-annual, or
otherwise for real estate and CPI clauses shall be in the discretion of the
Lessor, and Lessee shall be obliged to pay to the Lessor the entire amount
billed, for the period billed. Any amount payable by Lessee for the period
during which this Lease commences and expires shall be apportioned on the basis
of the proportion of the particular year or tax year during which the lease term
is in effect. Should the real estate taxes or the CPI Index figure fall below
the base periods there shall be no credit adjustment to Lessee therefor, so that
the basic rent charge shall be due at all times and there shall be no reduction
in the basic fixed rent therefor.
9. PAYMENT ON ACCOUNT. Lessee shall when requested by Lessor, and with each
monthly payment, make such payments in advance as Lessor shall reasonably
determine to be sufficient to provide, in the aggregate, a fund adequate to pay,
when due, all additional rent required under the real estate tax and CPI
clauses. Any such payments on account shall be adjusted to conform to the actual
R.E. tax bills and CPI Index amounts.
10. LATE PAYMENT. In the event Lessee fails to make any basic rent payment
within ten (10) days after the date when due, or fails to make any additional
rent payment for real estate or CPI clauses, or other payment under the lease
within thirty (30) days after billing date, then Lessee shall pay to Lessor
therefore a late charge at the rate of BankBoston Prime Rate plus two (2)
percent per annum from the due date of such basic rent payment(s) and/or from
the billing date of such other rent payments for real estate, CPI or otherwise,
until such amount(s) is/are paid.
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<PAGE> 9
11. BROKERAGE. Lessee warrants and confirms that it has dealt with no broker in
connection with the leasing of the Premises other than Boston Real Estate
Partners and Hunneman Commercial Company. Hunneman Commercial Company shall be
compensated by Boston Real Estate Partners from its fee from Lessor.
12. PROPERTY OF TENANT. Subject to the provisions of this SECTION 12, Tenant,
may place office fixtures, office equipment and the like ("TENANT'S PROPERTY")
in the Premises. Business machines and mechanical equipment and Tenant's other
personal property shall be placed and maintained by Tenant at its expense in
settings sufficient to absorb and eliminate any vibration or noise which may be
transmitted to the Building structure or to any other leased space in the
Building. Tenant covenants and agrees that all Tenant's Property of every kind,
nature and description which may be in or upon the Premises or Building, in the
public corridors, or on the sidewalks, area ways and approaches adjacent
thereto, during the Term hereof, and any movement of Tenant's Property, shall be
at the sole risk and hazard of Tenant, and Tenant hereby indemnifies and agrees
to save Landlord harmless from and against any liability, loss, injury, claim or
suit resulting directly or indirectly therefrom, unless caused by the negligence
or willful misconduct of the Landlord, its agents, contractors, or employees.
13. MAINTENANCE AND REPAIR.
13.1 Except for the work Landlord is obligated to perform under this Lease,
Tenant shall, at its sole cost and expense, maintain the Premises in good order,
condition and repair, reasonable wear and tear excepted, and shall make all
foreseen and unforeseen and ordinary and extraordinary changes and nonstructural
repairs required to keep the Premises in good repair and condition including,
without limitation, repairs to doors locks, hardware, carpets, walls, ceilings
and fixtures in the Premises, and other utility services located in and
exclusively serving only the Premises, and glass in and about the Premises.
Tenant, at its own expense, shall supply all light bulbs, tubes or similar
devices for lighting the Premises and Landlord may (but shall be under no
obligation to do so) offer to supply such devices for a reasonable fee to be
established by Landlord and to be paid by Tenant to Landlord in addition to any
other payments pursuant to the terms of this Lease. Tenant shall keep the
Premises equipped with all safety appliances required by law or ordinance or any
other regulation of any public authority because of any use made by Tenant and
to procure all licenses and permits so required because of such use and, if
requested by Landlord, to do any work so requested because of such use, it being
understood that the foregoing provisions shall not be construed to broaden in
any way the permitted uses of the Premises. Tenant is responsible for the
storage of food items, and the cleaning of all kitchen and lunchroom areas so as
to keep the Premises free from and clear of rodents, bugs and vermin, at its
sole cost and expense. Landlord shall provide exterminating services for the
Building in the normal operations of the Building when necessary.
13.2 Landlord shall (i) keep the Building structure including the roof, the
plumbing, mechanical, electrical, elevator, heating, and ventilating systems and
utility service lines furnished by Landlord in good and serviceable condition
and repair (except for any repair or replacement occasioned by any act or
neglect of Tenant, its servants, agents, customers, contractors, employees or
licensees); (ii) keep the sidewalks, common corridors, stairways, elevators and
all other public portions of the Building in serviceable repair and in a
reasonably clean and safe condition; (iii) comply with applicable governmental
rules, regulations, laws and
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<PAGE> 10
ordinances affecting the Building, unless the violation is caused by Tenant or
Tenant's use of the Premises or Tenant's neglect in connection therewith.
Landlord reserves the right to interrupt, curtail, stop and suspend the
furnishing of any services and the operation of the plumbing, electrical,
heating, and ventilating systems when necessary by reason of accident or
emergency or for repairs alterations, replacements or improvements which may
become necessary or when it cannot secure supplies or labor, or by reason of any
other cause beyond its control, without liability or any abatement of Rent being
due thereby, and without giving rise to a claim in Tenant's favor that such
failure constitutes actual or constructive, total or partial, eviction from the
Premises.
13.3 Notwithstanding the foregoing, should any malfunction of the Building
systems or facilities occur, or any interruption of the foregoing services
occur, Landlord shall reasonably and with due diligence repair such malfunction
or restore said service. If Landlord has prior notice of an interruption in such
service, Landlord shall give notice to Tenant as soon as reasonably practical.
13.4 Tenant shall give to Landlord prompt notice of any fire or accident in the
Premises or in the Building and of any damage to, or defective condition in, any
part or appurtenance of the Building's sanitary, electrical, heating and air
conditioning or other systems located in, or passing through, the Premises.
14. PROHIBITED ITEMS
14.1 Tenant shall not bring or permit to be brought or kept in or on the
Premises or elsewhere in the Building any hazardous, toxic, inflammable,
combustible or explosive fluid, material, chemical or substance, including
without limitation any item defined as hazardous pursuant to Chapter 21 E of the
Massachusetts General Laws or Section 9601 of Title 42 of the United States Code
as amended (except such as are related to Tenant's use of the Premises, provided
that the same are stored and handled in a proper fashion consistent with
applicable legal standards) (collectively, "HAZARDOUS SUBSTANCES").
14.2 Tenant, with regard to any conduct by Tenant, its agents, independent
contractors, business invitees, licensees, servants or employees, does hereby
agree to indemnify, defend, and save and hold harmless Landlord from all
actions, liens, demands, costs, expenses, fines and judgments resulting from or
arising by reason of the following: (i) for any spills or contamination of air,
soil or water or otherwise by Hazardous Substances occurring on the Premises or
the Property or upon removal therefrom; (ii) for the violation of any applicable
federal, state and local environmental laws, ordinances, orders, or regulations
now or hereafter affecting or applicable to the Premises, the Property or the
operation of Tenant's business at the Property; and (iii) for the violation of
any of the provisions of this Section of this Lease, in any case, including,
without implied limitation, reasonable engineering, attorney's and other
professional fees and expenses for evaluating, and/or curing the same and for
consulting, engineering defending against any such claims or removing such
Hazardous Substances, and for enforcing this indemnification.
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<PAGE> 11
14.3 Tenant shall not suffer or permit the Premises or any fixtures, equipment
or utilities therein or serving the same, to be overloaded, damaged or defaced.
14.4 Landlord shall, to the best of Landlord's knowledge and belief deliver
Premises free of hazardous materials.
15. SERVICES.
15.1 The Landlord shall provide:
(i) Access to the Premises twenty-four hours a day, seven days a week. Entry
after hours is controlled through a card key access system, and Lessee shall be
responsible to account for the distribution and possession of these keys by
Lessee's employees according to reasonable rules that Lessor may from time to
time promulgate.
(ii) Necessary elevator facilities. Tenant shall be permitted the use of the
passenger elevators for the transportation of employees, invitees, deliveries of
freight to and from the Premises. Large deliveries shall be at off peak hours
and shall be coordinated with the Building Manager.
(iii) Heat to the common areas of the Building and to the Premises and
air-conditioning equipment for the purposes of permitting the air-conditioning
of the Premises during normal seasonal heating and cooling periods from 7:00
a.m. to 6.00 p.m. on Monday through Friday and from 9:00 a.m. to 1:00 p.m. on
Saturdays, with the exception of Federal and State holidays recognized in
Massachusetts, to standards of comparable office buildings in the Fort Point
Channel area of Summer Street in the City of Boston. Heat and air conditioning
will be provided by Landlord at Tenant's expense after normal business hours and
on Sundays and holidays with reasonable notice given to Landlord by Tenant.
(iv) Cleaning of the Premises and Common Areas according to similar
specifications (which cleaning specifications are used for illustrative purposes
only) as set forth on EXHIBIT A (but excluding removal of any trash resulting
from the Improvements or alterations of Tenant pursuant to SECTION 7), provided
the Premises are kept in good order by the Tenant. Such cleaning shall be of the
quality provided for comparable office buildings in the City of Boston.
(v) Hot and cold running water, liquid soap, toilet tissue and paper towels for
core area washrooms.
(vi) Electricity for normal lighting of the main lobby, elevators, washrooms,
common areas, and stairs but not for the Premises.
(vii) Removal of snow and ice from the entry and sidewalks to the Building.
15.2 Landlord shall furnish to the Premises, 120/208 volt, 400 amps of
electricity. If Tenant shall require electricity in excess of the amount
provided above and if, (i) in Landlord's reasonable judgment, Landlord's
facilities are inadequate for such excess requirements, or (ii) such excess use
shall result in an additional burden on the Building utility systems and
additional cost to Landlord on account thereof, as the case may be Tenant shall,
upon demand, reimburse Landlord for such additional cost, as aforesaid, or
Landlord, in its sole discretion, and at the sole
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<PAGE> 12
cost and expense of Tenant, may furnish and install such additional wires,
conduits, feeders, switchboards and related equipment as reasonably may be
required to supply such additional requirements of Tenant. Tenant shall pay when
due all charges for electricity, telephone and other utilities and utility
services, supplied to or consumed upon the Premises, including consumption of
electricity used for air-conditioning and ventilating, and service inspections
made therefor during the Term (other than those expressly required to be
provided by Landlord hereunder), whether initially charged to Landlord or Tenant
and whether designated as a charge, tax, assessment, fee or otherwise.
15.3 In the event Tenant wishes to provide outside services for the Premises
over and above those services to be provided by Landlord as set forth herein,
Tenant shall first obtain the prior written approval of Landlord for the
installation and/or utilization of such services, which consent shall not be
unreasonably withheld or delayed. ("OUTSIDE SERVICES" shall include, but shall
not be limited to, cleaning services, Window cleaning services, waste or garbage
removal, television, so-called "canned music" services, security services,
catering services and the like above the level of services Landlord is obligated
to provide under this Lease). In the event Landlord approves the installation
and/or utilization of such services, such installation and utilization shall be
at Tenant's sole cost, risk and expense.
15.4 The Building will be managed by Teel Realty at the address set forth above.
Landlord reserves the right to change the manager of the Building.
16. INSPECTION. Landlord and its authorized representatives shall have the right
at all reasonable times to enter the Premises to inspect the same, to make such
repairs, alterations, replacements or improvements therein or in or to common
areas or other Premises within the Building as Landlord may deem necessary or
desirable, to exhibit the Premises to prospective mortgage lenders and
prospective purchasers of the Property, and during the last lease year to
prospective tenants or others, and to introduce conduits and pipes and/or ducts
as may be necessary; provided, however, that Landlord shall use all reasonable
effort not to unduly disturb Tenant's use and occupancy. Landlord shall not be
liable to Tenant in any manner for any expense, loss or drainage occurring by
reason of the aforesaid entries, unless caused by the willful act or negligence
of Landlord or its representatives, nor shall the exercise of any such right be
deemed an eviction or disturbance of Tenant's use or possession. Landlord shall
use reasonable efforts to minimize interference from such exercise with the
operation of Tenant's business.
17. CASUALTY. In the event of loss of, or damage to, the Premises or the
Building by fire or other casualty, the rights and obligations of the parties
hereto shall be as follows:
17.1 If the Premises, or any part thereof, shall be damaged by fire or other
casualty, Tenant shall give prompt notice thereof to Landlord, and Landlord,
upon receiving such notice, shall proceed promptly and with due diligence,
subject to the provisions of this Article, unavoidable delays, and, subject to
the availability of insurance proceeds, to repair, or cause to be repaired, such
damage. If the Premises or any part thereof shall be rendered untenantable by
reason of such damage, whether to the Premises or to the Building, Basic Rent
and all additional Rent shall proportionately abate for the period from the date
of such damage to the date when such damage shall have been repaired.
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17.2 If, as a result of fire or other casualty, the whole or a substantial
portion of the Building or the Premises is rendered untenantable, Landlord,
within ninety (90) days from the date of such fire or casualty, may terminate
this Lease by notice to Tenant, specifying a date not less than thirty (30) nor
more than sixty (60) days after the giving of such notice on which the Term of
this Lease shall terminate. If Landlord does not so elect to terminate this
Lease, then Landlord shall proceed with diligence to repair the damage to the
Premises and all facilities serving the same, if any, which shall have occurred,
and the Basic Rent and all additional rent shall meanwhile proportionately
abate, all as provided in Paragraph (17.1) of this Section. However, if such
damage is not repaired and the Premises restored to substantially the same
condition as they were prior to such damage within nine (9) months from the date
of such damage, Tenant within thirty (30) days from the expiration of such nine
(9) month period or from the expiration of any extension thereof by reason of
unavoidable delays as hereinafter provided, may terminate this Lease by notice
to Landlord, specifying a date not more than sixty (60) days after the giving of
such notice on which the Term of this Lease shall terminate. The period, within
which the required repairs may be accomplished shall be extended by the number
of days, not to exceed one hundred and eighty (180) days, lost as a result of
unavoidable delays, which term shall include delays in the making of any such
repairs which are due to governmental regulations, casualties and strikes,
unavailability of labor and materials, and other causes beyond the control of
Landlord (including those of the type described in SECTION 31 below).
17.3 Landlord shall not be required to repair or replace any of Tenant's
business machinery, equipment, cabinet work, furniture, personal property or
other installations (all of which shall, however, be restored by Tenant within
thirty (30) days after Landlord shall have completed any repair or restoration
required under the terms of this Article), and no damages, compensation or claim
shall be payable by Landlord for inconvenience, loss of business or annoyance
arising from any repair or restoration of any portion of the Premises or of the
Building. If such thirty (30) day period or portion of such thirty (30) day
period needs to be used by Lessee to restore his Premises to tenantable
condition, then Rent and all additional Rent shall be abated for the thirty (30)
day period or that portion of the thirty (30) day period so used by Lessee to
restore his Premises.
17.4 The provisions of this Article shall be considered an express agreement
governing any instance of damage or destruction of the Building or the Premises
by fire or other casualty, and any law now or hereafter in force providing for
such a contingency in the absence of express agreement shall have no
application.
17.5 In the event of any termination of this Lease pursuant to this Article, the
Term of this Lease shall expire as of the effective termination date as fully
and completely as if such date were the date originally fixed herein for the end
of the Term of this Lease, Tenant shall have access to the Premises for a period
of fifteen (15) days after the date of termination in order to remove Tenant's
personal property.
17.6 Landlord's Architect's certificate given in good faith, shall be deemed
conclusive of the statements therein contained and binding upon Tenant with
respect to the performance and
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completion of any repair or restoration work undertaken by Landlord pursuant to
this Section or SECTION 18.
18. CONDEMNATION - EMINENT DOMAIN.
18.1 If the Building or any part thereof or the access thereto shall be taken or
appropriated by eminent domain or shall be condemned for any public or
quasi-public use, or (by virtue of any such taking, appropriation or
condemnation) shall suffer any damage (direct, indirect or consequential) for
which Landlord or Tenant shall be entitled to compensation, then (and in any
such event) this Lease and the Term hereof may be terminated at the election of
Landlord by giving a written notice of termination to Tenant within sixty (60)
days following the date on which Landlord shall have received notice of such
taking, appropriation or condemnation. If the entire Premises or such portion
thereof or the access thereto shall be so taken, appropriated or condemned, such
that Tenant shall be precluded from effectively utilizing the Premises, then
(and in any such event) this Lease and the Term hereof may be terminated at the
election of Tenant by giving a written condemnation. Upon the giving of any such
notice of termination by either Landlord or Tenant this Lease and the Term
hereof shall terminate as of the date on which Landlord or Tenant, as the case
may be shall be required to vacate any portion of the area so taken,
appropriated or condemned or shall be deprived of the means of access thereto-
provided, however, that Landlord in its notice of termination may elect to
terminate this Lease and the Term hereof retroactively as of the date on which
such taking, appropriation or condemnation became legally effective. In the
event of such termination this Lease and the Term hereof shall expire as of such
effective termination date and the Rent and all additional Rent shall be
apportioned as of such date.
18.2 If neither party elects to terminate this Lease and the Term hereof,
Landlord shall, with reasonable diligence and at its expense, to the extent of
compensation and damages awarded by the government authority taking,
appropriating or condemning the Building, and further only to the extent said
compensation is made available to Landlord by any mortgagee, restore the
remainder of the Premises (but not the Improvements or any of Tenant's
Property), or the remainder of the means of access, as nearly as practicable to
the condition thereof prior to such taking, appropriation or condemnation, in
which event the Rent and all additional Rent shall be adjusted in a manner such
that (i) a just proportion of the Rent, according to the nature and extent of
the taking, appropriation or condemnation and the resulting permanent injury to
the Premises and the means of access thereto, shall be permanently abated, and
(ii) a just proportion of the remainder of the Rent, according to the nature and
extent of the taking, appropriation or condemnation and the resultant injury
sustained by the Premises and the means of access thereto, shall be abated until
what remains of the Premises (other than Improvements or any of Tenant's
Property) and the means of access thereto shall have been restored as fully as
practicable for permanent use and occupation by Tenant hereunder. Landlord shall
not be liable for any delays in such restoration which are due to governmental
regulations, casualties, strikes, unavailability of labor or materials, or other
causes beyond Landlord's control nor shall Landlord be liable for any
inconvenience or annoyance to Tenant or injury to the business of Tenant
resulting from reasonable delays in such restoration. Landlord expressly
reserves and Tenant hereby assigns to Landlord all rights to compensation and
damages created, accrued or accruing by reason of any
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such taking, appropriation or condemnation, but not including relocation
assistance payments by a governmental agency or entity specifically made to
Tenant.
19. INJURY AND DAMAGE. Landlord shall not be liable for any injury or damage to
persons or property resulting from fire, explosion, falling plaster, steam, gas,
electricity, electrical disturbance, water, rain or snow or leaks from any part
of the Building or from the pipes, appliances or plumbing works or from the
roof, street or subsurface or from any other place or by dampness or by any
other cause of whatever nature, unless caused by or due to the act, omission
fault, negligence or misconduct of Landlord, or its agents, independent
contractors, business invitees, licensees, servants or employees; nor shall
Landlord or its agents be liable for any such damage caused by other tenants or
persons in the Building or caused by construction operations of any private,
public or quasi-public person.
20. INDEMNIFICATION. Tenant hereby indemnifies and covenants to save Landlord
harmless from and against any and all claims, liabilities or penalties asserted
by or on behalf of any person, firm, corporation or public authority:
(i) on account of or based upon any injury to person, or loss of or damage to
property, sustained or occurring on the Premises on account of or based upon the
act, omission, fault, negligence or misconduct of any person other than Landlord
or its agents, independent contractors, business invitees, licensees, servants
or employees.
(ii) on account of or based upon any injury to person, or loss of or damage to
property, sustained or occurring in or about the Property and other than on the
Premises (and, in particular, without limiting the generality of the foregoing,
on or about the elevators, stairways, public corridors, sidewalks, concourses,
arcades, approaches, area ways, roof or other appurtenances and facilities used
in connection with the Building or the Premises) arising out of the use or
occupancy of the Building or the Premises by the Tenant or by its agents,
independent contractors, business invitees, licensees, servants or employees,
and caused by the act, omission, fault, negligence or misconduct of any person
other than Landlord or its agents, independent contractors, business invitees,
licensees, servants or employees, and in addition to and not in limitation of
the foregoing subdivision (i); and
(iii) on account of or based upon (including monies due on account of) any work
or thing whatsoever done (other than by Landlord or its contractors, or agents
or employees of either) on the Premises during the Term of this Lease and during
the period of time, if any, prior to the Effective Date when Tenant may have
been given access to the Premises;
and, in respect of any of the foregoing, from and against all costs, expenses
(including, without limitation, reasonable attorneys' fees) and liabilities
incurred in or in connection with any such claim, or any action or proceeding
brought thereon. If any action or proceeding be brought against Landlord by
reason of any such claim, Tenant upon notice from Landlord shall at Tenant's
expense resist or defend such action or proceeding and employ counsel therefor
reasonably satisfactory to Landlord, it being agreed that such counsel as may
act for insurance underwriters of Tenant engaged in such defense shall be deemed
satisfactory.
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21. INSURANCE.
21.1 Tenant agrees to maintain public liability insurance in an amount not less
than $2,000,000 per occurrence for personal injuries or deaths occurring in or
about the Premises
and the Building and property damage liability insurance in an amount not less
than $2,000,000, including so-called "all-risk" insurance covering all of the
Tenant's fixtures, furniture, furnishings, equipment and stock in trade against
loss or damage by fire and other hazards in an amount not less than ninety per
cent (90%) of the full insurable replacement value thereof without deduction for
depreciation, and to submit and maintain certificates evidencing such policies
with Landlord. The insurers under such policies shall be reasonably satisfactory
to Landlord and such policies shall name as insured parties Landlord and Tenant
and any party holding an interest to which this Lease may be subordinated
pursuant to SECTION 22 or SECTION 26 provided Tenant has received written notice
of the name and address of such party, as their interests may appear, and shall
provide twenty (20) days' prior written notice to Landlord of lapse or
cancellation. Tenant agrees to keep all employees working in the Premises
covered by workmen's compensation insurance in statutory amounts and to furnish
Landlord with the certificates thereof. Tenant shall procure and maintain such
additional insurance as Landlord or any Mortgagee may reasonably require from
time to time.
21.2 Tenant will not do or omit to do or keep anything in, upon or about the
Premises, the Building or any adjacent areas which may prevent the obtaining of
any fire, liability or other insurance upon or written in connection with the
Premises, the Building or such adjacent areas or which may make any such
insurance void or voidable or otherwise invalidate the obligations of the
insurer contained therein, or which may create any extra premiums or increase
the rate of any such insurance over that normally applicable to office
buildings, Tenant agrees to pay to Landlord, upon demand, the amount of any
extra premiums or any increase in the rate of such insurance which results from
the business carried on in the Premises by Tenant, whether or not Landlord has
consented to such business, provided however that the Landlord warrants that the
original Permitted Uses contained in SECTION 2 shall not cause this provision to
be in effect. If Tenant installs any electrical equipment that overloads the
lines in the Premises, Tenant shall, at its expense, make whatever changes are
necessary to comply with the requirements of the insurance underwriter or
governmental authorities having jurisdiction, but such changes shall be made in
accordance with the provisions of SECTION 7 AND 13.
21.3 During the Lease Term Landlord shall maintain, to the extent available at
reasonable cost, fire insurance covering the Building (exclusive of Tenant's and
other tenant's property and improvements) with reasonable deductibles as the
Landlord may determine from time to time, and comprehensive general public
liability insurance coverage in amounts totaling not less than $2,000,000.00.
All such policies shall be obtained from responsible companies qualified to do
business and in good standing in Massachusetts. Such insurance shall indemnify
Landlord, any managing agent designated by Landlord, Tenant, and (whenever
Landlord shall request) any mortgagee against all claims and demands for injury
to or death of persons or damage to property which may be claimed to have
occurred upon the Premises.
21.4 Tenant shall not do or permit to be done any act or thing upon the
Premises or elsewhere in the Building which will invalidate or be in conflict
with any insurance policies covering the
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Building and the fixtures and property therein and shall not do, or permit to
be done, any act or thing upon the Premises which shall subject Landlord to any
liability or responsibility for injury to any person or persons or to property
by reason of any business or operation being conducted on the Premises or for
any other reason. Tenant at its own expense shall comply with all rules, orders,
regulations or requirements of the Board of Fire Underwriters or any other
similar body having jurisdiction, and shall not (i) do, or permit anything to be
done, in or upon the Premises, or bring or keep anything therein, except as now
or hereafter permitted by the Fire Department, Board of Underwriters, Fire
Insurance Rating Organization, or other authority having jurisdiction, and then
only in such quantity and manner of storage as will not increase the rate for
any insurance applicable to the Building, or (ii) use the Premises in a manner
which shall increase such insurance rates on the Building or on property located
therein, over that applicable when Tenant first took occupancy of the Premises
hereunder. If by reason of failure of Tenant to comply with the provisions
hereof the insurance rate applicable to any policy of insurance shall at any
time thereafter be higher than it otherwise would be, then Tenant shall
reimburse Landlord for that part of any insurance premiums thereafter paid by
Landlord, which shall have been charged because of such failure by Tenant.
22. MUTUAL WAIVER OF SUBROGATION.
22.1 Tenant and Landlord covenant that with respect to any insurance coverage
carried by each of Tenant and Landlord in connection with the Premises or the
Building, whether or not such insurance is required by the terms of this Lease,
such insurance shall provide for the waiver by the insurance carrier of any
subrogation rights against Landlord, its agents, servants and employees under
Tenant's insurance policies or against Tenant, its agents, servants and
employees under Landlord's insurance policies, where such waiver of subrogation
rights does not require the payment of an additional premium in both the
Landlord's and the Tenant's policies, but, if an additional premium is required
to be paid by either party, then either party may offer to pay such premium
after being notified of such additional premium. However, if either party elects
not to pay such additional premium, for whatever reason, in its discretion, then
there shall be no obligation by any party to provide a waiver of subrogation
rights; the intention of the parties is that this waiver of subrogation be
mutually provided by each party for the benefit of the other, and is
specifically intended not to be unilaterally provided. The intention is that
both parties shall have a waiver of subrogation rights within their respective
insurance policies. Further, if for whatever reason, either party's insurance
coverage does not provide for such waiver provision then neither party shall be
obligated to provide for Said waiver rights in their respective policies. Either
Landlord or Tenant, upon request, shall provide to the other party a written
evidence as to whether or not such party's insurance does or does not provide
for said subrogation waiver clause.
22.2 Notwithstanding any other provision of this Lease, (i) Landlord shall not
be liable to Tenant for any loss or damage, whether or not such loss or damage
is caused by the negligence of Landlord, its agents, independent contractors,
business invitees, licensees, servants or employees, to the extent that such
loss or damage is covered by valid and enforceable insurance carried by Tenant;
and (ii) Tenant shall not be liable to Landlord for any loss or damage, whether
or not such loss or damage is caused by the negligence of Tenant or its agents,
independent
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contractors, business invitees, licensees, servants or employees, to
the extent that such loss or damage is covered by valid and enforceable
insurance carried by Landlord.
23. ASSIGNMENT, MORTGAGING AND SUBLETTING.
23.1 Tenant covenants and agrees that neither this Lease nor the Term hereof,
nor the estate hereby granted, nor any interest herein or therein, will be
assigned, mortgaged, pledged, encumbered or otherwise transferred (whether
voluntarily or by operation of law), and that neither the Premises, nor any part
thereof, will be encumbered in any manner by reason of any act or omission of
Tenant, or used or occupied, or permitted to be used or occupied, by anyone
other than Tenant, its employees or entities controlled by, under common control
with or controlling Tenant ("TENANT AFFILIATES"), or for any use or purpose
other than as above stated, or be sublet, or offered or advertised for
subletting, without in each case, Landlord's prior written consent, which
consent shall not be unreasonably withheld or delayed. Without limiting the
generality of the foregoing, Landlord shall not be deemed to have unreasonably
withheld its consent to an assignment or subletting if Landlord's consent is
withheld because:
(i) Tenant is then in default,
(ii) the portion of the Premises which Tenant proposes to sublet, including the
means of access and egress thereto and the proposed use thereof, or the
resulting Premises remaining, would violate any city, state, or Federal law,
ordinance, or regulation, including, without limitation, any applicable building
code or zoning ordinance;
(iii) the proposed use by the subtenant or assignee would not conform with the
uses set forth in SECTION 2 hereof,
(iv) in the reasonable judgment of the Landlord, the proposed subtenant or
assignee is of a character or is engaged in a business which would be
deleterious to the reputation of the Building, the proposed subtenant or
assignee is not financially responsible to perform its obligations under the
sublease or assignment;
(v) the proposed subtenant or assignee is a governmental or quasi-governmental
agency;
(vi) in the reasonable judgment of the Landlord, the intended use by the
proposed subtenant or assignee would be incompatible with the mix of uses of the
then existing tenants in the Building. Tenant agrees to reimburse Landlord
promptly for reasonable legal and other expenses incurred by Landlord in
connection with any request by Tenant for a consent to assignment or subletting.
In connection with any request by Tenant for Landlord's consent to assignment or
subletting, Tenant shall submit to Landlord in writing ("TENANT'S SUBLEASE
NOTICE") (i) the name of the proposed assignee or subtenant, (ii) such
information as to its financial responsibility and standing as Landlord may
reasonably require, and (iii) all of the terms and provisions upon which the
proposed assignment or subletting is to be made.
23.2 Any assignment of this Lease made hereunder shall be upon the express
condition that the assignee and Tenant shall promptly execute, acknowledge and
deliver to Landlord an
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agreement in form and substance satisfactory to Landlord whereby assignee shall
agree to be personally bound by the terms, covenants, and conditions of this
Lease on Tenant's part to be performed and whereby assignee shall expressly
agree that the provisions of this Section shall, notwithstanding such assignment
or transfer, continue to be binding upon it with respect to all future
assignments and transfers. Any sublease of the Premises or any part thereof
shall be expressly subject to the terms of this Lease and shall contain the
agreement of the subtenant thereunder that, upon Landlord's written request, it
will pay all rents under the sublease directly to Landlord. If, pursuant to this
Section, Tenant sublets the Premises or any part thereof or assigns this Lease,
Tenant shall pay to Landlord at the times and in the manner specified by
Landlord, an amount equal to seventy-five percent (75%) of the difference
between (a) all amounts which Tenant receives from a subtenant or assignee by
virtue of a subletting or assignment, after the Tenant and Landlord recover
their reasonable costs of such sublet or assignment pursuant to the provisions
of this Section, and (b) the total Rent due under this Lease (the rent to be
allocated to a sublet of less than the entire Premises shall be apportioned in
an appropriate manner, both proportionately and with due regard to the location
of the sublet space within the Premises), provided said difference is greater
than zero. No assignment or subletting of the Premises by Tenant shall relieve
Tenant from the observance or performance of any of the terms, covenants and
conditions of this Lease.
23.3 If this Lease be assigned, or if the Premises or any part thereof be sublet
or occupied by anybody other than Tenant and its employees, Landlord, may at any
time and from time to time collect Rent and other charges from such assignee,
subtenant or occupant, as the case may be, and apply the net amount collected to
the Rent and other charges herein reserved, but no such assignment, subletting,
occupancy or collection shall be deemed a waiver of the requirements set forth
in subparagraph (a) of this Section, the acceptance by Landlord of such
assignee, subtenant or occupant, as the case may be, as a tenant, or a release
of Tenant from the future performance by Tenant of its covenants, agreements and
obligations contained in this Lease. The consent by Landlord to an assignment or
subletting shall not in any way be construed to relieve Tenant from obtaining
the express consent in writing of Landlord to any further assignment or
subletting. No assignment, subletting or use of the Premises shall affect the
purpose for which the Premises may be used as stated in SECTION 2. Tenant shall
remain fully and primarily liable for all obligations hereunder, notwithstanding
any assignments, subletting or occupancy.
23.4 Subject to the provisions of this Article 23, as herein above set forth,
Tenant shall have the right to assign or sublet any or all of the Premises to
any affiliate of Tenant, successor in interest to Tenant by merger or
consolidation or sale of all or any majority portion of Tenant's stock or
assets, or any entity which controls, is controlled by or is under common
control with Tenant, subject to Landlord's written consent as herein above set
forth in SECTION 23, provided that assignee or sublessee and Lessee shall both
be jointly and severally responsible for all payments and obligations under
Lease. However, Tenant shall not be permitted to assign or sublet this lease in
accordance with the preceding sentence if such assignment or subletting has the
affect of reducing the aggregate creditworthiness of the entity or entities
which have liability to Landlord under this Lease, and it being understood that
all other provisions of Section 25 shall apply to any such assignment or
subletting.
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23.5 The listing of any name other than that of Tenant or Tenant's subsidiary,
whether on the doors of or on the Premises or on the Building directory, or
otherwise, shall not operate to vest any right or interest in this Lease or in
the Premises or be deemed to be the written consent of Landlord mentioned in
this Section, it being expressly understood that any such listing is a privilege
extended by Landlord revocable at will by written notice to Tenant, except where
the name listed is that of a sublessee, assignee, or other entity which has been
approved in writing by Lessor per this section.
24. DEFAULT
24.1 Conditions of Limitation - Re-entry - Termination. This Lease and the
herein term and estate are upon the condition that if (a) Tenant shall neglect
or fail to perform or observe any of the Tenant's covenants herein, including
(without limitation) the covenants with regard to the payment when due of Rent;
or (b) Tenant shall be involved in financial difficulties as evidenced by an
admission in writing by Tenant of Tenant's inability to pay its debts generally
as they become due, or by the making or offering to make a composition of its
debts with its creditors; or (c) Tenant shall make an assignment or trust
mortgage, or other conveyance or transfer of like nature, of all or a
substantial part of its property for the benefit of its creditors; or (d) the
leasehold hereby created shall be taken on execution or by other process of law
and shall not be revested in Tenant within sixty (60) days thereafter; or (e) a
receiver, sequester, trustee or similar officer shall be appointed by a court of
competent jurisdiction to take charge of all or a substantial part of Tenant's
property and such appointment shall not be vacated within sixty (60) days; or
(f) any proceeding shall be instituted by or against Tenant pursuant to any of
the provisions of any Act of Congress or State law relating to bankruptcy,
reorganization, arrangements, compositions or other relief from creditors, and,
in the case of any such proceeding instituted against it, if Tenant shall fail
to have such proceeding dismissed within thirty (30) days or if Tenant is
adjudged bankrupt or insolvent as a result of any such proceeding; or (g) any
event shall occur or any contingency shall arise whereby this Lease, or the term
and estate thereby created, would (by operation of law or otherwise) devolve
upon or pass to any person, firm or corporation other than Tenant, except as
expressly permitted under SECTION 23 hereof, or (h) Tenant shall vacate all or
substantially all of the Premises; then, and in any such event Landlord may, in
a manner consistent with applicable law, immediately or at any time thereafter
declare this Lease terminated by notice to Tenant, or, without further demand or
notice, enter into and upon the Premises (or any part thereof in the name of the
whole), and in either such case (and without prejudice to any remedies which
might otherwise be available for arrears of rent or other charges due hereunder
or preceding breach of covenant and without prejudice to Tenant's liability for
damages as hereinafter stated), this Lease shall terminate. The words "re-entry"
and "re-enter" as used in this Lease are not restricted to their technical legal
meaning.
24.2 Damages - Termination. Upon the termination of this Lease under the
provisions of this Article, Tenant shall pay to Landlord the Rent payable by
Tenant to Landlord up to the time of such termination, shall continue to be
liable for any preceding breach of covenant, and in addition, shall pay to
Landlord as damages, at the election of Landlord,
either:
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(x) the amount by which, at the time of the termination of this Lease (or at any
time thereafter if Landlord shall have initially elected damages under
Subparagraph (y), below), (i) the aggregate of the Rent projected over the
period commencing with such time and ending on the originally scheduled
Termination Date as stated in SECTION 3 exceeds (ii) the aggregate projected
rental value of the Premises for such period,
or,
(y) amounts equal to the Rent which would have been payable by Tenant had this
Lease not been so terminated, payable upon the due dates therefor specified
herein following such termination and until the originally-scheduled Termination
Date as specified in SECTION 3, provided, however, if Landlord shall re-let the
Premises during such period, that Landlord shall credit Tenant with the net
rents received by Landlord from such re-letting, such net rents to be determined
by first deducting from the gross rents as and when received by Landlord from
such re-letting the expenses reasonably incurred or paid by Landlord in
terminating this Lease, as well as the expenses of re-letting, including
altering and preparing the Premises for new tenants, brokers' commissions, and
all other similar and dissimilar expenses properly chargeable against the
Premises and the rental therefrom, it being understood that any such re-letting
may be for a period equal to or shorter or longer than the remaining term of
this Lease; and provided, further, that (i) in no event shall Tenant be entitled
to receive any excess of such net rents over the Sums payable by Tenant to
Landlord hereunder and (ii) in no event shall Tenant be entitled in any suit for
the collection of damages pursuant to this Subparagraph (y) to a credit in
respect of any net rents from a re-letting except to the extent that such net
rents are actually received by Landlord prior to the commencement of such suit.
If the Premises or any part thereof should be re-let in combination with other
space, then proper apportionment on a square foot area basis shall be made of
the rent received from such re-letting and of the expenses of re-letting.
Suit or suits for the recovery of such damages, or any installments thereof, may
be brought by Landlord from time to time at its election, and nothing contained
herein shall be deemed to require Landlord to postpone suit until the date when
the term of this Lease would have expired if it had not been terminated
hereunder.
The damages recoverable by Landlord pursuant to this Section shall in all events
include reimbursement of any commercially reasonable concessions made by
Landlord in connection with the leasing of the Premises to Tenant, including
without limitation (a) abated Rent, (b) allowances or improvements in excess of
any Building standard work, (c) sums paid to any former landlord of Tenant under
a so-called "take-over", lease assumption or similar agreement and (d) signing
bonuses and other incentive payments.
Nothing herein contained shall be construed as limiting or precluding the
recovery by Landlord against Tenant of any sums or damages to which, in addition
to the damages particularly provided above, Landlord may lawfully be entitled by
reason of any default hereunder on the part of Tenant.
24.3 Fees and Expenses. If Tenant shall default in the performance of any
covenant on Tenant's part to be performed as in this Lease contained and such
default continues beyond any
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applicable notice and grace period, Landlord may immediately, or at any time
thereafter, without notice, perform the same for the account of Tenant. If
Landlord at any time is compelled to pay or elects to pay any sum of money, or
do any act which will require the payment of any sum of money, by reason of the
failure of Tenant to comply with any provision hereof which continues beyond any
applicable notice and grace period, or if Landlord is compelled to or does incur
any expense, including without limitation reasonable attorneys' fees, in
instituting, prosecuting and/or defending any action or proceeding arising by
reason of any default of Tenant hereunder, Tenant shall on demand pay to
Landlord by way of reimbursement the sum or sums so paid by Landlord with all
interest, costs and damages. Without limiting the generality of the foregoing,
in the event that any rent is more than ten (10) days in arrears, Tenant shall
pay, as Additional Rent, a delinquency charge equal to two and one-half percent
(2 1/2%) of the arrearage for each calendar month (or fraction thereof) during
which it remains unpaid.
24.4 Landlord's Remedies Not Exclusive. The specified remedies to which Landlord
may resort hereunder are cumulative and are not intended to be exclusive of any
remedies or means of redress to which Landlord may at any time be lawfully
entitled, and Landlord may invoke any remedy (including without limitation the
remedy of specific performance) allowed at law or in equity as if specific
remedies were not herein provided for.
25. LANDLORD'S RIGHT TO CURE. If Tenant shall default in the observance or
performance of any term, covenant or condition on its part to be observed or
performed under this Lease, Landlord, without being under any obligation to do
so and without thereby waiving such default, may remedy such default for the
account and at the expense of Tenant, immediately and without notice in case of
emergency, or in any other case, if Tenant shall fail to remedy such default
with all reasonable diligence within the time set forth under SECTION 24 and
after Landlord shall have notified Tenant of such default. If Landlord makes any
expenditures or incurs any obligations for the payment of money in connection
therewith, including, but not limited to reasonable attorneys' fees, such sums
paid or obligations incurred, with interest at the rate of interest set forth in
SECTION 10, shall be paid to Landlord by Tenant as Rent hereunder.
26. SUBORDINATION/RIGHTS OF MORTGAGEES.
26.1 It is agreed that the rights and interests of the Tenant under this Lease
shall be (i) prior to the lien of any present mortgagee, or (ii) subject to and
subordinate to any mortgages that may hereafter be placed upon the Building, and
to any and all advances to be made thereunder, and to the interest thereon, and
all modifications, renewals, replacements, and extensions thereof, if the
mortgagee named in said Mortgages shall elect by written notice delivered to the
Tenant to subject and subordinate the rights and interest of the Tenant under
this Lease to the lien of its mortgage, provided, however, that as a condition
to any subordination of this Lease, Landlord shall obtain from any such
mortgagee a so-called recognition, attornment and non-disturbance agreement. In
the event of such election and upon notification by such mortgagee to the Tenant
to that effect, provided the foregoing condition shall have been satisfied, the
rights and interest of the Tenant in this Lease shall be deemed to be
subordinate to the lien of said mortgage, whether or not this Lease is dated
prior to such mortgage, and the Tenant shall execute and deliver whatever
instruments may be reasonably required for such purposes. The Tenant also agrees
that, if it shall fail at any time to execute, acknowledge and deliver such
instrument requested by the Landlord consistent with this SECTION 26 within
fifteen (15) days of receipt thereof by the
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Tenant, Landlord shall be entitled to send a second request; and if the Tenant
fails to execute, acknowledge and deliver such instrument within ten (10) days
of such second request, then, in addition to any other remedies available to it,
the Landlord may execute, acknowledge and deliver such instrument as the
attorney-in-fact of the Tenant and in the Tenant's name; and the Tenant hereby
makes, constitutes and irrevocably appoints the Landlord as its attorney-in-fact
for that purpose. The word "mortgage" as used herein includes mortgages, deeds
of trust, or other similar instruments, and modifications, consolidations,
extensions, renewals, replacements and substitutes thereof.
26.2 Upon entry and taking possession of the mortgaged property for any purpose
other than foreclosure, the holder of a mortgage shall have all rights of
Landlord and, during the period of such possession, the duty to perform all
Landlord's obligations hereunder. Except during such period of possession, no
such holder shall be liable, either as mortgagee or as holder of a collateral
assignment of this Lease, to perform, or be liable in damages for failure to
perform, any of the obligations of Landlord unless and until such holder shall
enter and take possession of the mortgaged property for the purpose of
foreclosing a mortgage. Upon entry for the purpose of foreclosing a mortgage,
such holder shall be liable to perform all of the obligations of Landlord,
provided that a discontinuance of any foreclosure proceeding shall be deemed a
conveyance to the owner of the equity of the mortgaged Premises.
26.3 No act or failure to act on the part of Landlord which would entitle Tenant
under the terms of this Lease, or by law, to be relieved of Tenant's obligations
hereunder or to terminate this Lease, shall result in a release or termination
of such obligations or a termination of this Lease unless (1) Tenant shall have
first given written notice of Landlord's act or failure to act to Landlord's
mortgagees of record of which Tenant shall have been given notice, if any,
specifying the act or failure to act on the part of Landlord which could or
would give basis to Tenant's rights and (ii) such mortgagees, after receipt of
such notice, have failed or refused to correct or cure the condition complained
of within a reasonable time thereafter, but nothing contained in this Section
shall be deemed to impose any obligation on any such mortgagee to correct or
cure any such condition.
26.4 The covenants and agreements contained in this Lease with respect to the
rights, powers and benefits of a mortgagee (particularly without limitation
thereby, the covenants and agreements contained in this SECTION 26) constitute a
continuing offer to any person, corporation or other entity, which by accepting
or requiring an assignment of this Lease or by entry or foreclosure assumes the
obligations herein set forth with respect to such mortgagee. Such mortgagee is
hereby constituted a party to this Lease as an oblige hereunder to the same
extent as though its name, was written hereon as such, and such mortgagee shall
be entitled to enforce such provisions in its own name. Tenant agrees on request
of Landlord to execute and deliver from time to time any agreement which may
reasonably be deemed necessary to implement the provisions of this SECTION 28.
27. SURRENDER OF POSSESSION; HOLDOVER.
27.1 At the expiration or earlier termination of the Term of this Lease, Tenant
will remove Tenant's Property and shall peaceably yield up to Landlord the
Premises in the same condition as
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they were on the Commencement Date, together with the Improvements made pursuant
to SECTION 7 hereof, except for reasonable wear and tear and damage by fire or
other casualty.
27.2 If Tenant remains in the Premises beyond the expiration or earlier
termination of the Term of this Lease such holding over shall not be deemed to
create any tenancy, but the Tenant shall be a Tenant-at-Sufferance only and
shall pay rent to Landlord at the times and manner determined by Landlord at a
daily rate in an amount equal to one and one-half (11/2) times the daily rate of
the Rent and other sums payable under this Lease as of the last day of the Term
of this Lease.
27.3 No act or thing done by Landlord during the term hereby shall be deemed an
acceptance of a surrender of the Premises, and no agreement to accept such
surrender shall be valid, unless in writing signed by Landlord. No employee of
Landlord or of Landlord's agents shall have any power to accept the keys of the
Premises prior to the termination of this Lease. The delivery of keys to any
employee of Landlord or of Landlord's agents shall not operate as a termination
of the Lease or a surrender of the Premises. In the event that Tenant at any
time desires to have Landlord underlet the Premises for Tenant's account,
Landlord or Landlord's agents are authorized to receive the keys for such
purposes without releasing Tenant from any of the obligations under this Lease,
and Tenant hereby relieves Landlord of any liability for loss of or damage to
any of Tenant's effects in connection with such underletting.
28. NOTICES. Any notice or demand by Tenant to Landlord shall be served by hand,
reputable over-night courier which provides a receipt, or by registered or
certified mail return receipt requested addressed to Landlord at the address
above indicated, with a courtesy copy to Kenneth Slater, 10 Tremont Street 6th
Floor, Boston, Massachusetts 02108, until otherwise directed in writing by
Landlord, and any notice or demand by Landlord to Tenant shall be served by
hand, by reputable overnight courier which provides a receipt, or by registered
or certified mail addressed to Tenant at the Premises, with a courtesy copy to
- ------------------------, until otherwise directed in writing by Tenant. Notice
or demand shall be deemed given on the earlier of actual receipt or five (5)
days after being mailed as aforesaid.
29. RULES AND REGULATIONS. Tenant will faithfully observe and comply with such
reasonable and nondiscriminatory Rules and Regulations as Landlord hereafter at
any time or from time to time may make and may communicate in writing to Tenant,
which in the judgment of Landlord shall be necessary for the reputation, safety,
care or appearance of the Building, or the preservation of good order therein,
or the operation or maintenance of the Building, or any equipment relating
thereto, or the comfort of tenants or others in the Building. The Rules and
Regulations in effect on the date hereof are attached as EXHIBIT B. If this
Lease shall conflict with any such Rules and Regulations, the provisions of this
Lease shall control. Landlord shall not have any duty or obligation to enforce
the Rules and Regulations or the terms, covenants or conditions in any other
lease as against any other tenant and Landlord shall not be liable to Tenant for
violation of the same by other tenants, their servants, employees, agents,
visitors, invitees or licensees, however Landlord will use reasonable efforts to
uniformly enforce the Rules and Regulations.
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30. QUIET ENJOYMENT. Tenant, on paying the Rent and other sums payable hereunder
and performing the covenants of this Lease on its part to be performed, shall
and may peaceably and quietly have, hold and enjoy the Premises for the Term of
this Lease.
31. LIMITATION OF LANDLORD'S LIABILITY. Except as otherwise expressly provided
in this Lease, this Lease and the obligations of Tenant to pay Rent hereunder
and perform all other covenants, agreements, terms, provisions and conditions
hereunder on the part of Tenant to be performed shall in no way be affected,
impaired or excused because Landlord is unable to fulfill any of its obligations
under this Lease or is unable to supply or is delayed in supplying any service
expressly or impliedly to be supplied or is unable to make or is delayed in
making any repairs, replacements, additions, alterations, improvements or
decorations or is unable to supply or is delayed in supplying any equipment or
fixtures if Landlord is prevented or delayed from doing so by reason of any
cause whatsoever beyond Landlord's reasonable control, including but not limited
to governmental preemption in connection with a national emergency or by reason
of any rule, order or regulation of any department or subdivision thereof of any
governmental agency or by reason of strikes, labor troubles, shortages of labor
or materials or conditions of supply and demand which have been or are affected
by war, hostilities or other similar or dissimilar emergency. In each such
instance of inability of Landlord to perform, Landlord shall exercise reasonable
diligence to eliminate the cause of such inability to perform. Tenant shall
neither assert nor seek to enforce any claim for breach of this Lease against
any of Landlord's assets other than Landlord's interest in the Building of which
the Premises are a part and in the rents, issues and profits thereof; and Tenant
agrees to look solely to such interest for the satisfaction of any liability of
Landlord under this Lease, it being specifically agreed that in no event shall
Landlord (which term shall include, without limitation any of the officers,
trustees, directors, partners, beneficiaries, joint venturers, members,
stockholders or other principals or representatives, disclosed or undisclosed,
of Landlord or any managing agent) ever be personally liable for any such
liability. This paragraph shall not limit any right that Tenant might otherwise
have to obtain injunctive relief against Landlord or to take any other action
which shall not involve the personal liability of Landlord to respond in
monetary damages from Landlord's assets other than the Landlord's interest in
said real estate, as aforesaid. In no event shall Landlord ever be liable for
consequential damages.
32. BINDING AGREEMENT. This Lease shall bind and inure to the benefit of the
parties hereto and such respective heirs, representatives, successors or assigns
as are permitted by this Lease. This Lease contains the entire agreement of the
parties and may not be modified except by an instrument in writing.
33. NOTICE OF LEASE. Tenant agrees that it will not record this Lease. Landlord
and Tenant shall, upon request of either, execute and deliver a notice of this
Lease in such recordable form as may be permitted by applicable statute. In no
event shall such document set forth the rent or other charges payable by Tenant
under this Lease; and any such document shall expressly state that it is
executed pursuant to the provisions contained in this Lease and is not intended
to vary the terms and conditions of this Lease, except by written document
executed in accordance with SECTION __ of the Lease.
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34. ESTOPPEL CERTIFICATE. Landlord and Tenant agree on the Commencement Date,
and from time to time thereafter upon not less than fifteen (15) days' prior
written request by the other, to execute, acknowledge and deliver to the other a
statement in writing in form mutually satisfactory to Landlord and Tenant
certifying that this Lease is unmodified and in full force and effect; that to
the best of their knowledge, Landlord and Tenant have no defenses, offsets or
counterclaims against the other; that to the best of their knowledge there are
no uncured defaults of Landlord or Tenant under this Lease (or, if there have
been any modifications, that this Lease is in full force and effect as modified
and stating the modifications and, if there are any defenses, offsets,
counterclaims, or defaults, setting them forth in reasonable detail); and the
dates to which the Rent and other charges have been paid. Any such statement
delivered pursuant to this SECTION 34 may be relied upon by any prospective
purchaser or mortgagee of Building which include the Premises or any prospective
assignee of any such mortgagee, and by any prospective subtenant, assignee or
lender of or to Tenant.
35. GENERAL PROVISIONS.
35.1 The various rights and remedies contained in this Lease and reserved to
each of the parties shall not be exclusive of any other right or remedy of such
party, but shall be construed as cumulative and shall be in addition to every
other remedy now or hereafter existing at law, in equity, or by statute. No
delay or omission of the right to exercise any power by either party shall
impair any such right or power, or shall be construed as a waiver of any default
or as acquiescence in any default. One or more waivers of any covenant, term or
condition of this Lease by either party shall not be construed by the other
party as a waiver of a subsequent breach of the same covenants, terms or
conditions. Acceptance by Landlord of a lesser sum than the Rent then due shall
be deemed to be an account of the earliest installment of such Rent, and
endorsements or statements on checks or letters accompanying any check or
payment as Rent shall not be deemed as accord and satisfaction, and Landlord may
accept such check or payment without prejudice to Landlord's right to recover
the balance of such installment or pursue any other remedy provided in this
Lease. The consent or approval of either party to or of any act by the other
party of a nature requiring consent or approval shall not be deemed to waive or
render unnecessary consent to or approval of any subsequent similar act.
35.2 Payments to Landlord under this Lease are rental for the use of the
Premises, and nothing herein contained shall be deemed or construed to make
Landlord a partner or associate of Tenant in the conduct of any business, nor as
rendering Landlord liable for any debts, liabilities or obligations incurred by
Tenant in the conduct of any business, it being expressly agreed that the
relationship between the parties is, and shall at all times remain, that of
landlord and tenant.
35.3 All amounts payable by Tenant to Landlord under any provision of this
Lease, other than pursuant to SECTION 4 shall be deemed to be additional rent
for the use of the Premises, and Landlord shall have the same remedies for the
nonpayment of such amounts as for the nonpayment of other rents. Wherever and
whenever Basic Rent abates, additional rent shall also abate.
35.4 Where the words "LANDLORD" and "TENANT" are used in this Lease they shall
include Landlord and Tenant and shall apply to persons, both men and women,
associations, partnerships and corporations, and in reading this Lease the
necessary grammatical changes required to make
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<PAGE> 27
the provisions hereof mean and apply to them shall be made in the same manner as
if written into the Lease; the words "Landlord" and "Lessor" may be used
interchangeably, and the words "Tenant" and "Lessee" may be used
interchangeably.
35.5 Tenant hereby declares that in entering into this Lease, Tenant relied
solely upon the statements contained in this Lease and fully understands that no
agents or representatives of Landlord have authority to in any manner change,
add to or detract from the terms of this Lease except by written document
executed in accordance with SECTION 28 of this Lease.
35.6 The invalidity of one or more of the provisions of this Lease shall not
affect the remaining portions of this Lease; and, if any one or more of the
provisions of this Lease should be declared invalid by final order, decree or
judgment of a court of competent jurisdiction, this Lease shall be construed as
if such invalid provisions had not been included in this Lease.
35.7 If Tenant shall be two or more persons or entities, each such person or
entity shall be jointly and severally liable for the payment of all sums due to
Landlord from Tenant under this Lease and the performance of all of Tenant's
covenants, agreements, or obligations under this Lease.
36. STANDARDS FOR LANDLORD'S PERFORMANCE. Landlord covenants and agrees with
Tenant that the performance of all of Landlord's obligations hereunder, and the
provision and maintenance of all services to be provided by Landlord hereunder,
shall at all times be consistent with the operation of comparable office
buildings in the City of Boston, and all services shall be provided as
efficiently and economically as reasonably possible consistent with such
standard.
37. LIEN WAIVERS. Landlord agrees to execute, acknowledge and deliver to Tenant
such Lien Waivers on Tenant's assets and inventory as may be reasonably
requested by Tenant on behalf of any party providing financing within ten (10)
days of a written request therefore, provided that Tenant is not then in default
of any provisions in this Lease.
38. OPTION TO EXTEND AND EXPAND.
38.1 Extension Option. Provided that at the time of the exercise of this option
Tenant is not in default beyond any applicable grace period of any of its
obligations under this Lease, Tenant shall have the option to extend the term of
the Lease for the mezzanine level portion(s) of the Premises (portions A and B-
this option to extend is for A and B together, not as separate spaces) for two
(2) years beginning from the expiration of five (5) years and one (1) month from
the Lease Effective Date, (The "EXTENDED TERM"). The intent is to tie the
Extension Term for the mezzanine level space to the current term of the lobby
level space, if Tenant should choose to exercise this Extension as herein
provided. The Termination of the Extension Term shall be made to coincide with
the Termination of the original seven (7) year and one (1) month term of the
lobby level portion of the Premises.
Tenant shall exercise this option for the Extended Term by written notice to
Landlord given at least 180 calendar days prior to the expiration of five (5)
years and one (1) month from the Lease Effective Date ("EXTENSION NOTICE"). The
terms and conditions of the Lease for the Extended
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Term shall be the same as for the initial term, including for payment of Real
Estate and CPI clauses, except that there shall be no further options to extend.
38.2 Expansion Option. Provided that no default has occurred and is continuing
under the Lease at the time of the exercise of the following Expansion Option,
Tenant shall have a right of First Offer for available contiguous office space
on the mezzanine and fourth floors (the "EXPANSION SPACE"), at the then market
Rent with a minimum term of five (5) years; this right of First Offer is subject
and subordinate to any similar prior rights which existing Tenants may have. It
is understood and agreed that any expansion space may be offered to Tenant
pursuant to this clause well before said space is actually vacated, and that any
expansion space may be offered to Tenant pursuant to this clause at any
appropriate time, including for example, when a Tenant notifies Landlord of its
intention to vacate from potential expansion space, or prior to the time when a
Lease is scheduled to terminate, or at any time when the Landlord would normally
seek to offer for rent such space.
(i) prior to offering all or any portion of the Expansion Space to others,
except to any existing tenants with prior rights at the Building, Landlord shall
notify Tenant in writing of the specific space being offered and the rent and
other terms on which it is being offered. Tenant shall have fifteen (15) days
from receipt of Landlord's notice to accept the space being offered by providing
written notice of such acceptance to Landlord.
(ii) For a period of fifteen (15) days after receipt of any such notice from
Landlord pursuant to this SECTION 38.2, Tenant shall have the right to lease the
Expansion Space from Landlord upon the terms and conditions set forth in such
offer, and otherwise on the terms and conditions set forth herein. The terms and
conditions of the Lease for the Expansion Space, shall generally be the same as
for the initial Term. In the event Tenant agrees to lease the Expansion Space
within such fifteen (15) day period, Landlord and Tenant shall promptly execute
an amendment to the Lease, or new lease, indicating the location and
configuration of the Expansion Space and stating the rent and other terms
therefore.
(iii) If during or upon the expiration of such fifteen (15) day period, Tenant
fails or declines to exercise its right to lease the Expansion Space then
Tenant's option to exercise this option with respect to such Expansion Space
shall cease and expire and be of no further force or effect until such time as
the Expansion Space is again vacated by the tenant of such space or otherwise
becomes available as provided below.
The Basic Rent for any said expansion space shall be the then current fair
market annual rent for 5 year leases of comparable Premises in the Fort Point
Channel area of the City of Boston commencing on the date such expansion term is
anticipated to begin, as reasonably and in good faith determined by Landlord and
in consultation with Lessee. Further, it is the intention of the parties that
the rent for the said term (5 years or otherwise) shall reflect the fair market
rent during such period.
In determining fair market rent, Lessor and Lessee shall consider, among other
things, operating expenses for commercial office properties in the Fort Point
Channel area of Boston, the inflation CPI, location of the Building and of the
Premises within the Building, and building amenities
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and condition, on-site parking and public transportation.
If Tenant disagrees with Landlord's determination of fair market annual rent for
such Expansion Term, Tenant shall notify Landlord of Tenant's objection to said
amount by written notice within twenty (20) days from the receipt of Landlord's
Notice. If Tenant so notifies Landlord, then the amount of the Basic Rent for
such Expansion Term shall be decided by two reputable appraisers with the MAl
(Member Appraisal Institute) designation from the American Institute of Real
Estate Appraisers and each with at least ten (10) years of experience in
appraising commercial office space in the Fort Point Channel of downtown Boston
comparable to the Premises, one selected by Landlord and one selected by Tenant,
based on the then fair market annual rent for leases of comparable lengths as
are contemplated for the expansion area lease of comparable Premises in the Fort
Point Channel area of the City of Boston commencing on the date such lease would
commence. In determining fair market rent, Landlord and the appraiser(s) shall
consider, among other things, operating expenses for commercial office
properties in the Fort Point Channel area of the City of Boston, the inflation
CPI, location of the Building and of the Premises within the Building, and
building amenities and condition, on-site parking and public transportation.
Landlord and Tenant shall each notify the other of its chosen appraiser within
ten (10) days of Landlord's receipt of Tenant's objection notice. Unless the
appraisers shall have reached a decision within ten (10) days after their
selection, they shall select an impartial third MAl appraiser qualified as above
within another ten (10) days. The three appraisers shall render their decision
within ten (10) days following the selection of the third appraiser and shall
notify Landlord and Tenant thereof. The unanimous written decision of the two
first chosen (without selection and participation of a third appraiser), or
otherwise the written decision of a majority of the three appraisers chosen as
herein provided shall be conclusive and binding upon Landlord and Tenant.
Landlord and Tenant shall each pay their own appraisers and, if a third
appraiser is needed as above, shall share his or her cost.
39. PARKING. On or about the Effective Date of Lease, Lessor shall provide four
(4) parking spaces to Lessee (two single spaces and one tandem/double space) and
as soon as available Lessor shall provide one additional parking space to
Lessee. Parking shall be as per a separate agreement.
40. COMPLIANCE WITH LAW. Landlord believes that the building and the Premises
and the office use thereof are in material compliance with all applicable
zoning, land use, environmental laws, and all other applicable laws and
ordinances including ADA and agreements and the requirements of all easement and
encumbrance documents and Landlord shall endeavor to keep the same in compliance
throughout the Term. Landlord believes to the best of his knowledge, information
and belief that installation of interior staircases as contemplated in this
Lease are permitted by law.
(This area left intentionally blank)
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IN WITNESS WHEREOF, the parties hereto have executed this Lease in duplicate,
the original as a sealed instrument on the day and year first above written,
LANDLORD:
RETALS, Ltd
By: /s/ Kenneth Z. Slater
---------------------------------
Retals, Inc., General Partner
Kenneth Z. Slater, Vice President
TENANT:
Student Advantage LLC
By: /s/ RAYMOND V. SOZZI
----------------------------------
(This area left intentionally blank)
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EXHIBIT A
SPECIFICATIONS FOR CLEANING SERVICES
(to be provided substantially as set forth herein)
Monday through Friday except as per lease,
State and Federal Holidays excluded
DAILY:
Lobby and Common Areas - nightly
- wash all glass doors and trim
- spot clean walls
- empty and wipe clean all standing brass ashtrays
clean directory, wash glass, spot clean brass
- vacuum all carpets and mats
- polish brass railings, door handles, front entrance glass
door brass fittings, ashtrays
- spray buff lobby floor (terrazzo)
- hose and clean front of building and canopy periodically
- spot clean carpet
OFFICE AREAS:
- empty and wipe clean wastebaskets, change liners nightly
- empty and wipe clean all ashtrays
- dust all desktops, equipment and fixtures in office space
including tops of binders and workstations
- dust window sills
- dry mop tile floors
- spot clean tile floors with wet mop as needed
- spot clean carpet
- vacuum carpet
- vacuum stairway carpet
LAVATORIES:
- clean and sanitize sinks, urinals, toilets, toilet seats
with disinfectant
- scour wash and disinfect all basins, bowls and urinals
- wipe clean counters, shelves and mirrors
- empty and wipe clean wastebaskets, change liners nightly
- sweep and mop floors with disinfectant
- spot clean walls
- all paper goods and hand soap supplied by management-scrub
restrooms as required
ELEVATORS:
- clean and polish interior and exterior of elevators to
include hardwood panel walls, finish door, grates, floors
and control panels
- vacuum elevator floors and spot clean carpet with shampoo as
needed
- sweep out and vacuum elevator thresholds on every occupied
floor
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<PAGE> 32
(Exhibit A - Specifications for Cleaning Services continued)
KITCHENETTES:
- wipe clean all tabletops, chairs, counters, sinks, cabinets,
appliances, vending machines and inside microwaves
- wet mop tile floors
- empty and wipe clean wastebaskets, change liners nightly
WEEKLY SERVICES:
LOBBY AND COMMON AREAS:
- wash all ways, glass and marble
- thoroughly clean directory
- polish all lobby brass
OFFICE AREAS:
- remove fingerprints and smudges from all doors, door frames,
partitions and walls to a height of 6 feet
- spot clean walls, doors, woodwork, furniture, fixtures,
files and glass
- dust furniture, fixtures, files, window
sills, baseboards and registers
- dust blinds
- clean all glass table tops, desks and tables
STAIRWAYS AND STAIRWELLS:
- sweep and dust thoroughly
MONTHLY LOBBY:
- high dusting of all overhead fight fixtures, pipes and
molding
- high dusting to a height of 6 feet to include
picture frames, clocks, shelving and ledges
- high dusting in lobby of molding and ledges over height of
6 feet
- windows: shall be washed 3 times in a calendar year
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<PAGE> 33
EXHIBIT B
RULES AND REGULATIONS
1. The sidewalks, entries, passages, elevators and stairways shall not be
obstructed by any of the tenants, or used by them for any other purpose than for
ingress and egress from their respective Premises; and no office furniture or
other furnishings or equipment shall be moved without prior notice to the
Lessor, and then only during such hours and through such passages, elevator and
stairways the Lessor my assign.
2. The floors, skylights and windows that reflect or admit light into the
passageways or into any place in the building shall not be covered or obstructed
by any tenant. The toilets and other plumbing fixtures shall not be used for any
purposes other than those for which they were constructed, and no sweepings,
rubbish, cigarettes or other substances shall be thrown therein.
3. Tenants, their agents and employees, must not leave the windows of the Leased
Premises open or uncared for when it rains or snows, or when a storm is
probable.
4. No hole shall be drilled or made in the stone or brick work of the building;
and no nails, staples or screws shall be driven into the plaster, woodwork or
floors; and no aerials or flagpoles or the like placed on the outside of said
building. No sign, advertisement or notice shall be inscribed, painted or
affixed on any part of the outside or inside of the building, except of such
color, size and style, and in such places upon or in said building as shall be
first designated by the Lessor and endorsed hereon. No awnings or window-shades
shall be placed on or in the building, except such as are uniform in material
and style with those in use or approved by the Lessor. No iron or steel safes
shall be placed in said building except of such weight and in such positions as
the Lessor shall have first approved.
5. No tenant shall do or permit anything to be done in the Premises occupied by
him, or bring or keep anything therein which will in any way increase the rate
of fire insurance on the building, or on property kept therein, or obstruct or
interfere with the rights of other tenants, or in any way injure or annoy them,
or conflict with the laws relating to fires or with the regulations of the Fire
Department or with any insurance policy upon the building, or any part thereof,
or with any of the rules or ordinances of the City of Boston.
6. Tenants must upon the termination of their respective leases, leave the
windows in leased Premises in the condition in which they were at the dates of
such leases, and must then restore all keys delivered to them.
7. Tenants, their agents and employees, shall not make nor permit any improper
noises in the building, smoke tobacco in the elevators, of interfere in any way
with other tenants or those having business with them.
8. Nothing shall be thrown out of the windows or down the passages or skylights
of the building nor may any sweepings, rubbish, cigarettes or other debris
thrown or left in the passageways, stairways, toilet rooms, entries or
sidewalks, by the tenants, their agents or employees, except in receptacles
placed by the lessor for the purpose.
9. No animals shall be kept in or about the Leased Premises.
10. No tenant shall use any other method of heating than that provided for
within the lease, without special written agreement with the lessor.
11. The Lessor reserves the right to make such other and further rules and
regulations as in the Lessor's judgment may from time to time be needful for the
safety, care and cleanliness of the building, and for tile preservation of good
order therein.
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EXHIBIT C
Resolutions Adopted by Consent Vote as of February ___, 1998
VOTED: That the Board consent to the execution of a new lease of
approximately 21,100 rentable square feet in a building located at 280
Summer Street, Boston, Massachusetts in a building owned by Retals,
Ltd.;
VOTED: That the President, Vice-President, Treasurer and Clerk are, and
each of them acting singly is, authorized in the name and on behalf of
the Company to execute and deliver the Lease, a Notice of Lease and
such other certificates, instruments, and documents which such officer
deems necessary or desirable to effectuate the transactions described
herein.
(This area left intentionally blank)
35
<PAGE> 35
CLERK' S CERTIFICATE
I, _____________________ the duly elected and acting clerk of Student Advantage,
LLC (the "Company") hereby certify as follows:
1. I am the duly elected and authorized clerk of the Company.
2. Attached hereto as EXHIBIT C is a true and correct copy of certain
resolutions which were adopted by unanimous consent of the Board of
Directors of the Company as of February ___, 1998.
3. __________________________ is a Vice President and Treasurer of the
Company.
EXECUTED as of this ___ day of February, 1998.
____________________________, Clerk
COMMONWEALTH OF MASSACHUSETTS
Suffolk, ss. February ___, 1998
Then personally appeared the above-named ___________________ the clerk of
Student Advantage, LLC and acknowledged the foregoing instrument as his free act
and deed and the free act and deed of the Company, before me.
------------------------------------
Notary Public
My Commission expires:
38
<PAGE> 36
OFFICE LOCATIONS
280 Summer St. Boston, MA 02210
313 Congress St. Boston, MA 02210
CAMPUS DEVELOPMENT
432 Park Ave. Ste. 505 South New York, NY 10016
2168 Shattuck Ave. Ste. 350 Berkeley, CA 94704
1776 Peachtree Rd. NW Suite 424.S Atlanta, GA 30309
1081 Wisconsin Ave. NW 3rd Floor Washington, DC 20007
1801 Westwood Blvd., Ste. 217 Los Angeles, CA 90024
4925 Greenville Avenue, Ste. 125 Dallas, TX 75206
906 University Place #202 Evanston, IL 60201
NEW MEDIA
906 University Place #201B Evanston, IL 60201
565 Commonwealth Ave. Boston, MA 02215
<PAGE> 37
LEASE
Dated September __, 1998
I. Retals, Ltd, c/o Teel Realty, Timothy C. Teel, Managing Agents, 1955
Commonwealth Avenue, #1, Brighton, MA 02135 (telephone 617-789-3944),
Lessor, hereby LEASES unto Student Advantage, LLC, with an address of 280
Summer Street, (the "Building"), Boston, Massachusetts, LESSEE
(Landlord/Lessor and Tenant/Lessee can be used interchangeably), the
premises located on the fourth floor of the Building, on the North Corner,
containing 2700 Rentable Square Feet (RSF), which is an agreed figure for
all purposes (formerly occupied by Direct Results) together with the right
to use in common with others the toilet rooms nearest thereto and the
entries, passageways, elevators and stairways necessary for ingress to and
egress from said premises, SUBJECT to the Rules and Regulations in regard
to said building as printed on this lease or at any time applicable, and to
the covenants hereinafter set forth, and to existing agreements of record
concerning the party walls and windows therein, and RESERVING to the Lessor
the right to maintain, use, repair and replace pipes, ducts, wires, meters,
and any other equipment, machinery, apparatus and fixtures serving any part
of said building, and the right to change from time to time the water,
electricity and other utilities serving said premises so that any utility
may be provided either by the Lessor or directly by the city or utility
company serving said building.
II. TO HAVE AND TO HOLD for the term of two (2) years beginning with the 1st
day of October, 1998, unless sooner terminated as hereinafter provided.
III. YIELDING AND PAYING rent at the rate of $58,050 per year, ($21.50 RSF), by
equal monthly payments in advance of $4,837.50 on the first of each month
for the term of this lease (2 years).
IV. The Lessor agrees to furnish heat to said premises and said passageways,
stairways and toilet rooms during reasonable business hours of the cold
season of each year, to furnish elevator service, attended or automatic,
and to light said passageways and stairways during reasonable business
hours, and to furnish such cleaning service as is customary in similar
office buildings in said Boston, all without charge but subject to
interruption due to any accident, to the making of repairs, alterations or
improvements, to labor difficulties, to trouble in obtaining fuel,
electricity, service or supplies from the sources from which they are
usually obtained for said building, or to any cause beyond the Lessor's
control.
V. The Lessee acknowledges that said premises are in good order, repair and
condition and that all glass is whole, and COVENANTS during said term and
such further time as the Lessee holds any part of said premises:
(a) to use said premises only for office purposes;
(b) to observe and respect in all particulars the Rules and Regulations in
regard to said building as printed on this Lease or at any time
applicable;
(c) to pay when due said rent and charges for electricity, including for
air conditioning and other utilities and additional rent from time to
time serving said premises whether furnished by the city, a utility
company or the Lessor;
<PAGE> 38
(d) damage by fire or unavoidable casualty excepted, to keep said premises
substantially in as good order, repair and condition as the same are
in at the commencement of said term, or may be put in thereafter, and
to make all repairs which the Lessee may desire, using workmen
furnished by the Lessor, but at the expense of the Lessee;
(e) not to injure, overload or deface said premises, nor permit on said
premises any auction sale or any inflammable fluids or chemicals or
any nuisance or the emission therefrom of any objectionable noise or
odor, nor permit any use of said premises which is improper,
offensive, contrary to law or ordinance, or liable to invalidate or
increase the premiums for any insurance on the building or its
contents or liable to render necessary any alteration or additions to
the building, and not to obstruct in any manner the hallways,
stairways, elevators and other common facilities in said building, or
the sidewalks or other approaches to said buildings; not to install
any air conditioning unit or system or other electrical apparatus
without previous written consent of Lessor, which shall not be
unreasonably withheld;
(f) not to assign this Lease, nor make any sublease, nor make any
alterations or additions, without on each occasion obtaining prior
written consent of the Lessor;
(g) to save the Lessor harmless and indemnified from any injury, loss,
claim or damage to any person or property while on said premises or in
transit thereto or therefrom, unless due to negligence of the Lessor,
and to any person or property anywhere occasioned by the omission,
negligence or default of the Lessee or of employees or visitors of the
Lessee; and to compensate the Lessor for any damage to said premises
or any part of said building by the Lessee or any agent or servant of
the Lessee or anyone, in conveying any articles including office
furniture, furnishings and equipment, and merchandise, to or from said
premises, or in violating any of said Rules and Regulations or these
covenants; and that all property of any kind that may be on said
premises shall be at the sole risk of the Lessee;
(h) to permit the Lessor and the Lessor's agents to examine the premises
at reasonable times, and, if the Lessor shall so elect, to make any
repairs or additions the Lessor may deem necessary, and at the
Lessee's expense to remove any alterations, additions, signs, awnings,
aerials or flagpoles, or the like, not consented to in writing, and to
show the premises to prospective purchasers and tenants and to keep
affixed to any suitable part of the premises during the three months
preceding the expiration of said term or any extension thereof a
notice for letting or selling;
(i) not to permit any employees or visitors of the Lessee to violate any
covenant or obligation of the Lessee hereunder.
(j) no act or thing done by Lessor or Lessor's agent during the term
hereby demised shall constitute an eviction by Lessor, nor shall such
be deemed an acceptance or surrender of said premises, and no
agreement to accept surrender shall be valid unless in writing signed
by Lessor; no employee or Lessor or Lessor's agent shall have any
power to accept the keys of said premises prior to the termination of
the lease. The delivery of keys to any employee of Lessor or of
Lessor's agent shall not operate as a termination of the lease or a
surrender of the premises.
VI. The Lease further COVENANTS:
(k) that this lease shall not bind the Lessor in any manner until approved
and executed on behalf of the Lessor.
(l) in case the Lessee has possession of any part of said premises prior
to the commencement of said term, to perform and observe all of the
Lessee's covenants from and after the date of such possession except
that rent shall be apportioned until the beginning of said term.
(m) at the termination of this lease to remove the Lessee's goods and
effects peaceably to yield up said premises and all additions thereto
broom clean and in good order, repair and condition, damage by fire or
unavoidable casualty excepted;
(n) that the Lessor may, at the Lessor's option, remove and store in any
public warehouse or elsewhere at the Lessee's risk and expense and in
the name of the Lessee any or all property not removed from said
premises at the expiration of forty-eight hours after the termination
of this Lease; and that if at the expiration of said forty-eight hours
the Lessee shall be in default under the provisions hereof, the Lessor
may immediately or at any time thereafter, and without notice, sell at
public or private sale any or all of such property not so removed and
apply the net proceeds of such sale to the payment of any sum or sums
due hereunder and the Lessor shall not be liable to the Lessee or to
any other person in any manner whatsoever by reason of such removal
or sale or anything done in connection therewith except to apply
the net proceeds of any such sale as aforesaid.
(o) to pay the Lessor's expenses, including reasonable attorneys' fees,
incurred in enforcing any of the Lessee's obligations under this
lease.
-2-
<PAGE> 39
<PAGE> 40
VII. PROVIDED ALWAYS that in case said premises or building, or any part
thereof, shall be taken by any exercise of the right of eminent domain or
shall be destroyed by fire or unavoidable casualty or by action of any
public or other authority, or shall receive any direct or consequential
damage for which the Lessor and the Lessee, or either of them, shall be
entitled to compensation by reason of anything lawfully done in pursuance
of any public or other authority during this lease or any extension
thereof, then this Lease shall terminate at the election of the Lessor,
which election may be made notwithstanding the Lessor's entire interest may
have been divested; and if the Lessor shall not so elect, then in case of
such taking, destruction or damage rendering the premises unfit for use and
occupation, a just proportion of said rent according to the nature and
extent of the injury shall be abated until the premises, or in case of such
taking what may remain thereof, shall have been put in proper condition for
use and occupation. The Lessor reserves and excepts all rights to damages
to said premises and building and the leasehold hereby created, now accrued
or hereafter accruing by reason of any exercise of the right of eminent
domain, or by reason of anything lawfully done in pursuance of any public
or other authority; and by way of confirmation, the Lessee grants to the
Lessor all the Lessee's rights to such damages and covenants to execute and
deliver such further instruments of assignment thereof as the Lessor may
from time to time request. Lessee hereby constitutes Lessor his lawful
attorney in fact to issue, sign and seal all such documents necessary in
order to bring about assignment of Lessor's rights in case of exercise of
the right of eminent domain.
VIII.PROVIDED ALSO, and this lease is upon this condition, that if the Lessee
shall neglect or fail to perform or observe any of the Lessee's covenants
herein, or if the leasehold hereby created shall be taken on execution, or
by other process of law, or if any assignment shall be made of the Lessee's
property for the benefit of creditors, or if a receiver, guardian,
conservator, trustee in bankruptcy or similar officer shall be appointed to
take charge of all or any part of the Lessee's property by a court of
competent jurisdiction, or if the Lessee commits any act of bankruptcy, or
if a petition is filed by the Lessee under any bankruptcy law, or if a
petition, is filed against the Lessee under any bankruptcy law and the same
shall not be dismissed within thirty (30) days from the date upon which it
is filed, then and in any of said cases, the Lessor lawfully may
immediately or at any time thereafter and without demand or notice enter
upon the premises of any part thereof in the name of the whole and
repossess the same as of the Lessor's former estate and expel the Lessee
and those claiming through or under the Lessee and remove their effects,
forcibly if necessary, without being deemed guilty of any manner of
trespass and without prejudice to any remedies which might otherwise be
used for arrears of rent or preceding breach of covenant, and upon such
entry this lease shall terminate; or, if Lessor so determines, it may cause
such termination by sending notice to Lessee by registered mail, the usual
registry receipt from postal authorities being conclusive evidence of
suitable notice of such termination; and the Lessee covenants that, in case
of such termination or in case of termination under the provisions of
statute by reason of the default of the Lessee, the Lessee will forthwith
pay to the Lessor as damages a sum equal to the amount by which the rent
and other payments called for hereunder for the remainder of the original
term and of any extension thereof exceed the fair rental value of said
premises for the remainder of the original term and of any extension
thereof, and in addition thereto will furthermore indemnify the Lessor
during the remainder of the original term and of any extension thereof
against all loss and damage suffered by reason of such termination however
caused, first deducting any damages paid as above provided, the loss and
damage, if any, for each rent payment period during the remainder of the
original term and of any extension thereof to be paid at the end of each
such rent payment period. In case of default or bankruptcy, as heretofore
stated, the entire balance of all rentals which will become due, pursuant
to and during the term of this lease, shall accrue immediately to Lessor as
liquidated damages, and if there be any other payments due Lessor resulting
from the landlord-tenant relationship, such payments shall also become
immediately due and payable as liquidated damages. No act or thing done by
Lessor or Lessor's agent during the term hereby demised shall constitute an
eviction by Lessor, nor shall such be deemed an acceptance or surrender of
said premises, and no agreements to accept surrender shall be valid unless
in writing signed by Lessor. No employee of Lessor or Lessor's agent shall
have any power to accept the keys of said premises prior to the termination
of the lease. The delivery of keys to any employee of Lessor or of Lessor's
agent shall not operate as a termination of the lease or a surrender of the
premises. It is mutually agreed by and between Lessor and Lessee, that the
respective parties hereto shall and they hereby do waive trial by jury in
any action, proceeding or counterclaim brought by either of the parties
hereto against the other on any matters whatsoever arising out of or in any
connected with this lease, the relationship of Lessor and Lessee, Lessee's
use or occupancy of said premises, and/or any claim or injury or damage,
and any emergency statutory or other statutory remedy.
IX. No consent or waiver, express or implied, by the Lessor, to or of any
breach of any covenant, condition or duty of the Lessee, shall be construed
as a consent or waiver to or of any other breach of the same or any other
covenant, condition or duty. Wherever notice by registered mail is
specified, notices may also be given by a
-3-
<PAGE> 41
<PAGE> 42
reputable overnight delivery service, such as FEDEX, or by hand delivery,
or by certified mail with return receipt requested. Any notice from the
Lessor to the Lessee or from the Lessee to the Lessor including statutory
14 day notice to vacate shall be deemed duly served if mailed by registered
mail addressed, if to the Lessee, at said premises or, if to the Lessor, at
the place from time to time established for the payment of rent and the
customary registered mail receipt shall be conclusive evidence of such
service and Lessee shall be deemed to have received actual and/or
constructive notice, whichever is required, of the contents of any notice,
including a 14 day notice to vacate for non-payment of rent, and the
customary registered mail receipt issued by the post office shall be
conclusive evidence as to the sending and receipt of such notice. Unless
repugnant to the context, the words "Lessor" and "Lessee" appearing herein
shall be construed to refer to the person or persons, natural or corporate,
named above as Lessor or as Lessee as the case may be, and the heirs,
executors, administrators, successors and assign of such person or persons
and those claiming through or under them or any of them. If the Lessee is
several persons or a firm, the Lessees' covenants are joint or partnership
and also several. No agreement of the Lessor shall be binding upon any
person except for defaults occurring during such person's period of
ownership, nor binding individually upon any fiduciary or the beneficiary
of any trust.
WITNESS the execution hereof in duplicate, under seal, the day and year
first above written.
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See clause X attached hereto and made part of this lease instrument.
-4-
<PAGE> 43
RULES AND REGULATIONS
1. The sidewalks, entries, passages, elevators and stairways shall not be
obstructed by any of the tenants, or used by them for any other purpose than for
ingress to and egress from their respective premises; and no office furniture or
other furnishings or equipment shall be moved without prior notice to the
Lessor, and then only during such hours and through such passages, elevators,
and stairways as the Lessor may assign.
2. The floors, skylights and windows that reflect or admit light into the
passageways or into any place in the building shall not be covered or obstructed
by any tenant. The toilets and other plumbing fixtures shall not be used for any
purposes other than those for which they were constructed, and no sweepings,
rubbish, cigarettes, or other substances shall be thrown therein.
3. Tenants, their agents and employees, must not leave the windows of the
leased premises open or uncared for when it rains or snows, or when a storm is
probable.
4. No hole shall be drilled or made in the stone or brick work of the
building; and no nails, staples or screws shall be driven into the plaster,
woodwork, or floors; and no aerials or flagpoles or the like placed on the
outside of said building. No sign, advertisement or notice shall be inscribed,
painted or affixed on any part of the outside or inside of the building, except
of such color, size and style, and in such places upon or in said building as
shall be first designated by the Lessor and endorsed hereon. No awnings or
window-shades shall be placed on or in the building, except such as are uniform
in material and style with those in use or approved by the Lessor. No iron or
steel safes shall be placed in said building except of such weight and in such
positions as the Lessor shall have first approved.
5. No tenant shall do or permit anything to be done in the premises
occupied by him, or bring or keep anything therein which will in any way
increase the rate of fire insurance on the building, or on property kept
therein, or obstruct or interfere with the rights of other tenants, or in any
way injure or annoy them, or conflict with the laws relating to fires or with
the regulations of the Fire Department, or with any insurance policy upon the
building, or any part thereof, or with any of the rules or ordinances of the
City of Boston.
6. Tenants must, upon the termination of their respective leases, leave the
windows in the leased premises in the condition in which they were at the dates
of such leases, and must then restore all keys delivered to them.
7. Tenants, their agents and employees, shall not make nor permit any
improper noises in the building, smoke tobacco in the elevators, or interfere in
any way with other tenants or those having business with them.
8. Nothing shall be thrown out of the windows or down the passages or
skylights of the building nor any sweepings, rubbish, cigarettes or other debris
thrown or left in the passageways, stairways, toilet rooms, entries or
sidewalks, by the tenants, their agents or employees, except in receptacles
placed by the Lessor for the purpose.
9. No animals shall be kept in or about the leased premises.
10. No tenant shall use any other method of heating than that provided for
in the within lease, without special agreement with the Lessor.
11. The Lessor reserves the right to make such other and further rules and
regulations as in the Lessor's judgment may from time to time be needful for the
safety, care and cleanliness of the building, and for the preservation of good
order therein.
<PAGE> 44
<PAGE> 45
Page 1 Attachment to Lease, Clause x.
x.1. In addition to the basic rent payments as aforesaid, Lessee shall pay, if
due, additional rent payments for real estate taxes. If in any period commencing
with July 1, 1999 (Fiscal Year 2000) the real estate taxes on the land and
building of which, the leased premises are a part, are in excess of the amount
of real estate taxes thereon for Fiscal year 1999, hereinafter called the base
year, Lessee will pay to lessor as additional rent hereunder, when and as
designated by notice in writing by Lessor, 2.19% of such excess that may occur
in each year of the term of this Lease and any extensions thereafter, and
proportionately for any part of a fiscal or calendar year. If the Lessor obtains
an abatement of any such excess real estate tax and where the lessee has paid
excess real estate tax share over real estate base year tax under this formula,
Lessor shall refund proportionately to Lessee one-half of such pro-rated excess
abated real estate taxes; this is agreed to for simplicity to allow for Lessor's
or third Party services and/or expenses to obtain any such abatements. The base
year of fiscal year 1999 shall be the net real estate taxes after abatements, if
any. These payments shall be payable as per clauses x.6, x.7, and x.8.
x.2. In lieu of an operating expense and inflation clause and for the period
commencing with April 1, 1998, during the term of the Lease and extensions
thereafter, the National Consumer Price Index "U" Series (hereinafter "CPI")
shall be used. For identification this series was 159.1 for January 1997, (1982
- - 1984 = 100 and as this may be adjusted hereafter by the U.S. Government). The
most recent monthly index prior to commencement of the Lease shall be used as
the base period index CPI for all calculation purposes throughout the term of
this lease and extensions. The amount to be paid by Lessee will be the increase
in the future CPI index (numerator) over the base CPI index (denominator),
figured as a percentage, and then multiplied by the then current rent.
As a hypothetical example for clarity: If the lease were to commence on April
1st, 1998, the base CPI would be the March 1998 figure (which should be released
by the US Government in early April 1998). Assume this March 1998 CPI is 162.50.
Further assume that the March 1999 CPI is 165.9. The percentage increase would
be figured as follows: 165.9 (the then current CPI) minus 162.50 (the base) =
3.4 which is the nominal increase in the CPI index. This increase of 3.4 is
divided by the base 162.50 to derive the percentage increase. 3.4/162.50 = an
increase of 2.1%. In this example, there is a 2.1% increase, and assuming an
annual rent of $56,700, the amount due for that 12 month period would be
$1190.70 (the rent times the % increase - $56,700 * 2.1%). These payments shall
be payable as per clauses x.6, x.7, and x.8.
x.3. The applicable Basic Rent is payable in twelve equal monthly installments,
in advance, on the first day of every calendar month, provided that if the Term
begins or ends on a day other than the first or last day of a calendar month,
the installment of Rent payable on the first day of the Term, or the first day
of the last calendar month of the Term shall be prorated for such first or last
partial month on the basis of a 365 day year. Lessee will pay the Basic Rent
without counterclaim, set-off, deduction or demand to Lessor at its address set
forth above, or at such other place as is designated in writing from time to
time by Lessor. Lessor hereby acknowledges receipt of first months rent in the
amount of $4,837.50.
x.4. The security deposit shall be $4,387.50 (the "SECURITY DEPOSIT"), which
shall be paid to Lessor by October 15, 1998. Lessor shall not be obligated to
segregate nor pay interest on said security deposit.
<PAGE> 46
Page 2 Attachment to Lease, Clause x.
x.5. As to Clause V. (f): Any profit on an assignment or sublease shall inure
completely to the benefit of the Lessor subject in all cases to the continuing
responsibility of the lessee as above stated, and provided, further, that any
assignee or sublease shall be jointly and severally responsible for all payments
due under Lease, and such that such assignee or sublease shall be credit worthy
and of character and use consistent with the reputation of the building of which
the demised premises are a part, and further that the Lessee shall not be in
default of any covenants or provisions of this lease at the time of any such
assignment or sublease; any sublease shall be rented at market rent and shall
not be made without prior written consent of Lessor.
x.6. Time and period of Billing, whether annual, semi-annual, or otherwise for
real estate and CPI clauses shall be in the discretion of the Lessor, and Lessee
shall be obliged to pay to the Lessor the entire amount billed, for the period
billed. Any amount payable by Lessee for the period during which this Lease
commences and expires shall be apportioned on the basis of the proportion of the
particular year or tax year during which the lease term is in effect. Should the
real estate taxes or the CPI Index figure fall below the base periods there
shall be no credit adjustment to Lessee therefor, so that the basic rent charge
shall be due at all times and there shall be no reduction in the basic fixed
rent therefor.
x.7. Payment on Account: Lessee shall when requested by Lessor, and with each
monthly payment, make such payments in advance as lessor shall reasonably
determine to be sufficient to provide, in the aggregate, a fund adequate to pay,
when due, all additional rent required under the real estate and CPI clauses.
Any such payments on account shall be adjusted to conform to the actual R.E. tax
bills and CPI Index amounts.
x.8. Late Payment: In the event Lessee fails to make any basic rent payment
within five (5) days after the date when due, or fails to make any additional
rent payment for real estate or CPI clauses, or other payment under the lease
within ten (10) days after billing date, then Lessee shall pay to Lessor upon
demand therefor a late charge at the rate of twelve (12) percent per annum from
the due date of such basic rent payment(s) and/or from the billing date of such
other rent payments for real estate, CPI or otherwise, until such amount(s)
is/are paid.
x.9. Lessee warrants and confirms that it has dealt with no broker in connection
with the leasing of the premises and has dealt directly with Teel Realty as
Agent of the Lessor.
x. 10. All provisions of paragraph x. shall govern if inconsistent with any
other provision or provisions of this Lease.
x. 11. General Provisions.
(a) The various rights and remedies contained in this Lease and reserved to each
of the parties shall not be exclusive of any other right or remedy of such
party, but shall be construed as cumulative and shall be in addition to every
other remedy now or hereafter existing at law, in equity, or by statute. No
delay or omission or the right to exercise any power by either party shall
impair any such right or power, or shall be construed as a waiver of any default
or as acquiescence in any default. One or more waivers of any covenant, term or
condition of this Lease by either party shall not be construed by the other
party as a waiver of a subsequent breach
<PAGE> 47
Page 3 Attachment to Lease, Clause x.
of the same covenants, terms or conditions. Acceptance by Lessor of a lesser sum
than the Rent then due shall be deemed to be an account of the earliest
installment of such Rent, and endorsements or statements on checks or letters
accompanying any check or payment as Rent shall not be deemed as accord and
satisfaction, and Lessor may accept such check or payment without prejudice to
Lessor's right to recover the balance of such installment or pursue any other
remedy provided in this Lease. The consent or approval of either party to or of
any act by the other party of a nature requiring consent or approval shall not
be deemed to waive or render unnecessary consent to or approval of any
subsequent similar act.
(b) A waiver by Lessor of any clause or portion of this Lease must be in writing
to be deemed valid and to bind the Lessor for any such specific written waiver,
the same shall not be deemed to operate as a waiver thereafter for any purpose.
(c) All amounts payable by Lessee to Lessor under any provision of this Lease,
other than those of basic rent per clause pursuant to SECTION 4, shall be deemed
to be additional rent for the use of the Premises, and Lessor shall have the
same remedies for the nonpayment of such amounts as for the nonpayment of other
rents.
(d) Where the words "LESSOR" and "LESSEE" are used in this Lease they shall
include Lessor and Lessee and shall apply to persons, both men and women,
associations, partnerships and corporations, and in reading this Lease the
necessary grammatical changes required to make the provisions hereof mean and
apply to them shall be made in the same if written into the Lease.
(e) The invalidity of one or more of the provisions of this Lease shall not
affect the remaining portions of this Lease, and, if any one or more of the
provisions of this Lease should be declared invalid by final order, decree or
judgment of a court of competent of a court of competent jurisdiction, this
Lease shall be construed as if such invalid provision had not been included in
this Lease.
<PAGE> 48
IN WITNESS WHEREOF, the parties hereto have executed this Lease in duplicate,
the original as a sealed instrument on the day and year first above written,
LESSOR:
RETALS, Ltd.
By: /s/ Kenneth Z. Slater
------------------------------------
Retals, Inc., General Partner
Kenneth Z. Slater, Vice President
LESSEE:
Student Advantage, LLC
By: /s/ Raymond V. Sozzi
------------------------------------
<PAGE> 49
LEASE AMENDMENT
THIS AGREEMENT, made this 17 day of February, 1999, by and between Retals Trust
(successor to Retals Ltd.) (the "LESSOR") and Student Advantage, Inc. (successor
to Student Advantage, LLC) as Lessees (the "LESSEE").
WITNESSETH THAT:
WHEREAS, Lessor has heretofore leased to Lessee and Lessee has hired from Lessor
a portion of the building located at 280 Summer Street, Boston, Massachusetts,
consisting of the Mezzanine and Lobby levels of the Building, all as more
particularly described and set forth in certain lease instruments identified as
following:
Original Lease dated February, 1998 with a term ending 2003 for the Mezzanine
space and 2005 for the Lobby level space ("ORIGINAL LEASE"),
WHEREAS, the parties wish to add space to the Original Lease, subject to the
terms and conditions hereof, the following additional premises:
The Additional Premises being Leased under this Lease Amendment shall be the
space located on the fourth floor, being 5,410 RSF, which is an agreed figure
for all purposes, which space is currently occupied by Coneco Corporation and
bordering Summer Street and abutting 300 Summer Street and the atrium at the
rear of 280 Summer Street, (the "ADDITIONAL PREMISES").
NOW, THEREFORE, for good and valuable consideration by each party paid to the
other, the receipt and sufficiency of which is hereby acknowledged, and in
further consideration of the foregoing premises and the mutual obligations set
forth herein, the parties hereby agree as follows:
1. All terms used in this agreement shall have the same meaning as in the
Original Lease, unless otherwise specifically provided herein. For ease of
clarity in this instrument and for identification of the Original Lease
instrument currently in force between the parties, and of the spaces covered
thereunder, and the Additional Premises to be rented hereunder, the following
Terms and definitions section is included in and made part of this agreement:
1.1 BUILDING. Whenever "BUILDING" is used in this instrument it shall refer to
the building known as 280 Summer Street, Boston, Massachusetts.
1.2 ORIGINAL LEASE. A certain lease by and between Retals Trust ("LESSOR") and
Student Advantage, LLC ("LESSEE"), dated February, 1998 with a term ending 2003
for the Mezzanine space and 2005 for the Lobby level space at 280 Summer Street,
Boston, MA; whenever used in this instrument shall refer to said Original Lease
instrument.
1.3 ORIGINAL PREMISES. Whenever "ORIGINAL PREMISES" is used it shall refer to
the
<PAGE> 50
premises which were leased under the Original Lease (consisting of portions
of the Mezzanine and Lobby levels of the Building).
1.4 ADDITIONAL PREMISES. Whenever "ADDITIONAL PREMISES" are used in this
instrument it shall refer to the 5,410 RSF on the 4th floor of the Building
which is designated in Exhibit A attached hereto, and is currently occupied by
Coneco, Inc., as also described above.
1.5 LEASE AMENDMENT. This lease amendment dated February __, 1999, for the
Additional Premises being hereby leased, shall be called "LEASE AMENDMENT" and
wherever used in this lease. shall refer to this amendment for the Additional
Premises.
1.6 PREMISES. The Original Premises and the Additional Premises together shall
be deemed to be the Premises as defined in the Original Lease as hereby amended
(the "AMENDED PREMISES").
2. Except as specifically set forth in this Lease Amendment of Original Lease,
nothing herein is intended or should be construed to modify, amend delete, or
otherwise affect the terms of said Original Lease, which shall remain in full
force and effect as amended hereby. The terms of the Original Lease instrument
are incorporated herein by reference and made part of this instrument.
3.1 The term for the Lessee's use of Additional Premises shall be 4 years 5
months, beginning March 1, 1999 and terminating July 31, 2003, unless sooner
terminated by the terms of the Original Lease, as amended and or extended.
3.2 The Termination Dates for the Original Premises leased under Original Lease
are hereby amended as follows:
Termination date for the Mezzanine ("A + B") space is hereby changed to July 31,
2003. Termination date for the Lobby ("C") space is hereby changed to July 31,
2005.
These Termination dates are intended to supercede the Termination Dates
contained in the Original Lease.
4. RENT; SECURITY DEPOSIT.
Basic Rent shall be payable monthly in advance as follows:
For the Additional Premises Basic Rent shall be one hundred thirteen thousand
six hundred ten ($113,610) dollars per annum, from March 1, 1999 (or from date
of occupancy if later, see Section 9) through July 31, 2003.
Basic Rent for the Mezzanine Space "A" and "B" shall be $139,162 per year (which
amount is currently payable under Original Lease) payable through July 31, 2003;
Basic Rent for the Lobby Level, space "C", (which amount is currently payable
under Original
<PAGE> 51
Lease), shall be $298,563 per annum payable through May 31, 2003;
Basic Rent for the Lobby Level space "C" shall be $337,506 per annum from June
1, 2003 through July 31, 2005.
For clarity the Basic Rent schedule for the Amended Premises* are as follows:
<TABLE>
<CAPTION>
LOCATION $ PER RSF #RSF $ PER YEAR $ PER MONTH
-------- --------- ---- ---------- -----------
<S> <C> <C> <C> <C> <C>
3/1/99 Lobby "C" $23.00 12,981 $298,563
to Mezz "A&B" $17.00 8,186 $139,162
5/31/03 Additional
Premises $21.00 5,410 $113,610
-------- -----------
(4th Floor) $551,335** $45,944.58
LOCATION $ PER RSF # RSF $ PER YEAR $ PER MONTH
-------- --------- ----- ---------- -----------
6/1/03 Lobby "C" $26.00 12,981 $337,506
to Mezz "A & B" $17.00 8,186 $139,162
7/31/03 Additional
Premises $21.00 5,410 $113,610
-------- -----------
(4th Floor) $590,278** $49,189.83
8/1/2003***
to
7/31/05 Lobby "C" $26.00 12,981 $337,506 $28,125.50
</TABLE>
* This excludes other space (2,700 RSF) on the 4th floor being rented under a
separate Lease dated September, 1998 and expiring September 30, 2000.
** This is an annualized figure (there may be different start dates for the
component spaces).
*** BASIC RENT IN OPTION YEARS: If Lessee exercises its option to extend for
the Mezzanine "A & B" space, then Basic Rent for that space from August 1,
2003 through July 31, 2005 shall be $139,162 per annum; if Lessee exercises
its option to extend for the Additional Premises, then the Basic Rent for
that space shall be the then fair market rent (as determined in Section 38
of Original Lease) from August 1, 2003 through July 31, 2005. Either or
both amounts, shall be in addition to the Basic Rent of $337,506 due for
the Lobby Space from August 1, 2003 through July 31, 2005
The applicable Basic Rent is payable in twelve equal monthly installments, in
advance, on the first day of every calendar month, provided that if the Term
begins or ends on a day other than the first or last day of a calendar month,
the installment of Basic Rent payable on the first day of the Term, or the first
day of the last calendar month of the Term shall be prorated for such first or
last partial month on the basis of a 365 day year. Lessee will pay all rent
(Basic Rent and Additional Rent) without set-off, deduction or demand to
Landlord at its address set forth above or below, or at such other place as is
designated in writing from time to time by Lessor.
SECURITY DEPOSIT. The Security Deposit shall be increased by nine thousand four
hundred sixty seven and 1/2 ($9,467.50) dollars which is the equivalent of one
month's Basic Rent for the
<PAGE> 52
Additional Premises. The total Security Deposit then
shall be $45,944.58 ($36,477.08 for the Original Premises + $9,467.50 for the
Additional Premises = $45,944.58 new total Security Deposit.) The additional
Security Deposit of $9,467.50 shall be paid prior to March 1, 1999.
5. CPI/RE CONTRIBUTIONS. The Additional Premises shall be subject to CPI, Real
Estate, and Electricity contributions in the same manner, and using the same
formulas and bases as the Original Premises. The CPI contribution, as described
in the Original Lease, shall be applied to the Additional Premises leased
hereunder. The Additional Premises leased hereunder shall add to the percentage
allocated for purposes of real estate contribution share, so that Lessee's total
real estate percentage for the Premises shall be 21%.
6. IMPROVEMENTS. Additional Premises are being taken by Lessee "as is". This is
reflected in the rental rate.
7. Except as modified by this Lease Amendment the Original Lease, is hereby
ratified and confirmed. Unless the context requires otherwise, all terms used
herein shall be construed in conformity with the applicable provisions of the
Original Lease.
8. OPTION TO EXTEND.
8.1 The Option to Extend the Mezzanine level ("A + B") is hereby amended so that
the extension period of two years, shall commence on August 1, 2003, and expire
on July 31, 2005. All other terms of extension including, but not limited to,
rent and notification, shall remain the same as per Section 38.1 of the Original
Lease. Section 38, except as amended herein, is hereby ratified and confirmed.
8.2 Lessee shall also have an option to extend the term for the Additional
Premises for 2 years, commencing on August 1, 2003 and expiring on July 31,
2005. The terms of this option to extend the term of the Additional Premises
shall be the same as in the Original Lease (including notification to Lessor by
Lessee). Section 38 is hereby incorporated by reference, except that the Basic
Rent shall be the then fair market rent (as determined in said Section 38 of
Original Lease).
9. In the event that the Additional Premises are not delivered to Lessee on
March 1, 1999 all rent for the Additional Premises (Basic Rent and Additional
Rent) shall abate as per Section 4 above for each day that Lessor has not
delivered the Additional Premises to Lessee. In the event that the Additional
Premises has not been delivered to Lessee by March 31, 1999, Lessee shall then
have the right to Terminate this Lease Amendment, by written notice to Lessor,
subject to Lessor's right to cure the delivery within 15 days. Said notice must
be received by Lessor on April 1, 1999.
10. Lessor and Lessee each represent that it has not dealt with a broker in
connection with this Lease Amendment. Each party agrees to indemnify and hold
the other harmless against any and all liability incurred by the other party
resulting from claims made by any broker, finder or similar agent claiming to
have dealt with the representing party.
11. Section 23 of Original Lease is hereby amended so that as a condition of
sublease or
<PAGE> 53
assignment Lessor may require, in its sole discretion, that market rent be
obtained for any proposed sublease or assignment.
12. In all other respects the Original Lease is hereby ratified and confirmed,
except as hereby amended.
13. This Lease Amendment is subject to and conditioned upon the execution and
delivery of Agreement for Early Termination of Lease dated February 8, 1999 by
and between Retals Trust (successor to Retals Ltd.) and Coneco, Inc. Lessor
shall have no liability for the failure of Coneco Inc. to execute and deliver
said agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Lease in duplicate,
the original as a sealed instrument on the day and year first above written.
LESSOR: LESSEE:
Retals Trust Student Advantage, Inc.
By: /s/ Alvin J. Slater By: /s/ Christopher B. Andrews
-------------------------------- ----------------------------
Alvin J. Slater, Trustee of Retals Trust Print: Christopher B. Andrews
duly authorized, and not individually. Title: V.P. Finance & Admin.
<PAGE> 54
<PAGE> 55
STUDENT ADVANTAGE, INC.
Consent of Directors in Lieu of Meeting
As of February ___, 1999
The undersigned, being all of the directors of Student Advantage, Inc. (the
"Company"), hereby consent to the adoption of the following votes and agree that
said votes shall have the same effect as if duly adopted at a meeting of the
Board of Managers held for that purpose:
VOTED: That the Board consent to the execution of a lease amendment of
approximately 5,410 rentable square feet in a building located at
280 Summer Street, Boston, Massachusetts in a building owned by
Retals Trust;
VOTED: That the President, Vice-President, Treasurer, Managing Member and Clerk
are, and each of them acting singly is, authorized in the name and on
behalf of the Company to execute and deliver the Lease, a Notice of Lease
and such other certificates, instruments, and documents which such
officer deems necessary or desirable to effectuate the transactions
described herein.
EXECUTED as of the date set forth above,
-------------------------------
-------------------------------
-------------------------------
(This area left intentionally blank)
<PAGE> 56
EXHIBIT A
[graphic describing leased space appears here]
<PAGE> 57
EXHIBIT B
Resolutions Adopted by Consent Vote as of February ___, 1999
VOTED: That the Board of Directors consent to the execution of a lease
amendment of approximately 5,410 rentable square feet in a building
located at 280 Summer Street, Boston, Massachusetts in a building
owned by Retals Trust;
VOTED: That the President, Vice-President, Treasurer and Clerk are, and
each of them acting singly is, authorized in the name and on behalf
of the Company to execute and deliver the Lease, a Notice of Lease
and such other certificates, instruments, and documents which such
officer deems necessary or desirable to effectuate the transactions
described herein.
(This area left intentionally blank)
<PAGE> 58
CLERK'S CERTIFICATE
I, _____________________________ the duly elected and acting clerk of Student
Advantage, Inc. (the "Company") hereby certify as follows:
1. I am the duly elected and authorized clerk of the Company.
2. Attached hereto as EXHIBIT C is a true and correct copy of certain
resolutions which were adopted by unanimous consent of the Board of
Directors of the Company as of February ___, 1999.
3. ___________________________ is a Vice President and Treasurer of the
Company.
EXECUTED as of this ___ day of February, 1999.
____________________________, Clerk
COMMONWEALTH OF MASSACHUSETTS
Suffolk, ss February ___, 1999
Then personally appeared the above-named ____________________ the clerk of
Student Advantage, Inc. and acknowledged the foregoing instrument as his free
act and deed and the free act and deed of the Company, before me
------------------------------------
Notary Public
My Commission expires:
<PAGE> 1
Exhibit 10.11
INVESTMENT AGREEMENT
AGREEMENT dated March 25, 1996 among Raymond V. Sozzi, Jr., an
individual residing at 300 Columbus Avenue, Apt. #2, Boston, MA 02116 (the
"Member"), Student Advantage LLC, a Delaware limited liability company (the
"Company"), and Princeton Review Publishing, L.L.C., a Delaware limited
liability company (jointly with any successor or assign, the "Investor").
WHEREAS, the Company is engaged in the business (the "Business") of
operating and developing a student membership organization (the "Program") for
profit, which business was previously conducted by the Member and certain others
at various times as a sole proprietorship and then as a partnership;
WHEREAS, the Member will own, after the initial investment hereunder,
4,026 Units of membership interest of the Company;
WHEREAS, the parties hereto desire for the Investor to invest in the
Company on the terms and subject to the conditions set forth herein; and
WHEREAS, the Company and the Investor desire to enter into certain
joint marketing arrangements on the terms and subject to the conditions set
forth herein;
NOW, THEREFORE, in consideration of the premises and promises herein
contained and for other good and valuable consideration, the sufficiency of
which is hereby acknowledged, the parties hereto agree as follows:
1. ISSUE AND SALE OF SECURITIES. (a) At the Closing (as defined
in Section 2 hereof), the Company shall issue and sell to the Investor
membership interests (the "Securities") of the Company that shall constitute
upon issuance 2,479 Units out of a total of 10,000 Units of all issued and
outstanding membership interests of the Company (collectively, the "Membership
Interests"), at an aggregate purchase price of $250,000.
(b) At the Closing, the Investor shall lend to the
Company an aggregate of $75,000, to be evidenced by a Convertible Secured
Promissory Note (the "Convertible Note"), due in full on September 30, 1997.
(c) ACQUISITION LOAN. The Investor shall lend to the
Company not more than $100,000, to be evidenced by a Secured Term Acquisition
Promissory Note in the principal amount of $100,000 (the "Term Acquisition
Note") on the following terms and conditions (the "Acquisition Loan"). The
Acquisition Loan shall be made, conditioned upon the closing by the Company of
the acquisition of the business and
<PAGE> 2
assets of The Passport, Inc. ("Passport") (the "Acquisition"), on the schedule
of cash needed for the payment of the last $100,000 of purchase price in
connection therewith, provided that (i) such closing occurs on or before June
30, 1996, (ii) the Acquisition involves aggregate consideration paid by the
Company not exceeding $175,000, is pursuant to a written agreement, the terms
and conditions of which are acceptable to the Investor, (iii) the obligation to
repay the Acquisition Loan shall be evidenced a secured Term Acquisition Note,
which will provide for installment loans scheduled to coincide with the payment
of the purchase price after $50,000 of payments due from the Company to Passport
in connection with the Acquisition (provided that upon payment in full of the
purchase price of the Acquisition the balance of such $100,000 shall be advanced
under the terms of the Acquisition Loan), in form acceptable to the Investor,
which note shall provide that the principal amount of the Term Acquisition Note
shall be repaid in full on September 30, 1998 (or September 30, 1997 to the
extent that the Investor chooses to exercise its conversion option under the
Convertible Note), together with interest at the prime rate, and that the
repayment shall be secured by the same assets securing the Convertible Note
pursuant to a security agreement and a pledge agreement in form acceptable to
the Investor, (iv) no material adverse change shall have occurred in either the
business or the financial condition of the Company, and (v) all representations
and warranties contained in Section 5 herein are true and correct at the closing
of the Acquisition.
2. CLOSING. The closing (the "Closing") at which the Securities
and the Convertible Note shall be sold to the Investor pursuant to this
Agreement shall be held simultaneously with the signing of this Agreement on the
date hereof (the "Closing Date").
3. USE OF PROCEEDS. The Company shall use the proceeds from the
sale of the Securities to satisfy the working capital needs of the Company as
set forth in Schedule 3 hereto.
4. CONDITIONS. The purchase of and payment for the Securities to
be sold and delivered to the Investors at the Closing is subject to the accuracy
in all material respects of all representations and warranties by the Company
contained herein and to the performance by the Company of all the terms and
conditions on its part to be performed hereunder on or prior to the Closing Date
and to the satisfaction on or prior to the Closing Date of the following
conditions precedent:
4.1. CERTIFICATE. [Omitted.]
4.2. CO-SALE AGREEMENT. The Company and the Member shall have
entered into the Contract of Right of Co-Sale.
-2-
<PAGE> 3
4.3. SECURITY AGREEMENT AND NOTES. The Company shall have entered
into the Security Agreement and executed and delivered UCC-1 financing
statements as required by the Investor, and, prior to the advance of funds
covered thereby, the Convertible Note and the Term Acquisition Note. The Member
shall have entered into a Pledge Agreement with the Investor.
4.4. OPERATING AGREEMENT. The members of the Company including the
Investor shall have entered into an Operating Agreement in respect of the
Company (the "Operating Agreement").
4.5. EMPLOYMENT AGREEMENT. The Member shall have entered into an
Employment Agreement with the Company.
5. COMPANY'S REPRESENTATIONS AND WARRANTIES. Each of the Company
and the Member, jointly and severally, represents and warrants, each of which
representation and warranty shall be deemed material and to have been relied
upon by the Investor, that as of the date hereof:
5.1. ORGANIZATION, GOOD STANDING AND AUTHORITY. The Company is a
limited liability company duly organized, validly existing and in good standing
under the laws of the State of Delaware without limit as to the duration of its
existence, except as set forth in the Operating Agreement. The Company is
authorized and in good standing to do business in Massachusetts. The Company has
the power and adequate authority, rights and franchises to own its property and
carry on its business as now being conducted or as contemplated to be conducted
herein. The Company has the power and adequate authority to enter into and
perform this Agreement and to issue the Securities. Copies of its Certificate of
Formation, together with all amendments, as filed with the Secretary of State of
Delaware on December 5, 1995, and a Certificate of Good Standing of recent date,
all certified by the appropriate officer of the State of its organization
(Exhibit 5.1) and a copy of its Operating Agreement and consent of its members
authorizing this Agreement certified by its Manager or other appropriate officer
(Exhibit 4.4) are attached hereto.
5.2. MEMBERSHIP INTERESTS. All of the issued and outstanding
Membership Interests are, and the Securities when issued will be, duly
authorized, validly issued, fully paid and non-assessable and were, and will be,
issued in compliance with all applicable securities laws. The capitalization of
the Company including all long-term and short-term debt both prior to and as
adjusted for the transactions contemplated herein is set forth on Schedule 5.2
hereto. Except as set forth in Schedule 5.2 there are no (a) authorized or
outstanding equity securities of any class; or (b) outstanding or contingent
agreements, arrangements or commitments, warrants, options or other
-3-
<PAGE> 4
rights to subscribe for or purchase, or otherwise acquire by conversion,
exchange or otherwise, any equity securities of the Company.
5.3. FINANCIAL. (a) The Company has maintained the books of account
of the Business in accordance with applicable laws, rules and regulations,
except to the extent that a failure to do so would not have a material adverse
effect on the business, financial condition or prospects of the Business (a
"Material Adverse Effect"), and such books and records are and, during the
periods covered by the Financial Statements (as defined in Section 5.3(b)
hereof), were correct and complete in all material respects, and in all material
respects completely and accurately reflect the transactions of the Business and
the income expenses, assets and liabilities of the Business, including the
nature thereof and the transactions giving rise thereto.
(b) Included in Schedule 5.3 hereto are unaudited balance
sheets of the Business as of October 31, 1995 and as of February 23, 1996 (the
"Balance Sheet") and the related unaudited statements of operations for the
fiscal year ended December 31, 1994 and the 10-month period ended October 31,
1995 (collectively the "Financial Statements").
(c) The Financial Statements have been prepared from the
books of account of the Company and present fairly the financial position of the
Business as of the date of such statements and the results of operations of the
Business for the periods covered thereby.
(d) The Business and the Company have no liabilities
(including, without limitation, unasserted claims, whether known or unknown,
matured or unmatured, absolute, contingent or otherwise) that are not reflected
or are in excess of the amount reflected in the Balance Sheet or notes thereto
except (i) those incurred since the time of preparation of the Balance Sheet in
the ordinary course of business, consistent with past practice, in arms' length
transactions with unrelated parties, which are consistent with the cash flows
and liabilities projected in Schedule 5.10 hereto and which do not have and
cannot reasonably be expected to have, in the aggregate, a Material Adverse
Effect (ii) those specifically described on Schedule 5.3(d) hereto; and (iii)
those that have inadvertently been omitted from Schedule 5.3(d) but which do not
exceed $20,000 in the aggregate, provided any liability to a member or an
affiliate of a member shall be deemed not inadvertent.
5.4. TITLE AND CONDITION OF ASSETS. (a) Other than inventory
disposed of in the ordinary course of business (consistent with customary
practice), the Company has and will retain after Closing good and marketable
title to all of the assets reflected on the Balance Sheet or necessary to
conduct its business or used in the Business as operated during the prior year,
free and clear of liens, encumbrances, claims of third parties, security
interests, mortgages, pledges, agreements, options and rights of others
-4-
<PAGE> 5
of any kind whatsoever, whether or not filed, recorded or perfected, and
including, without limitation, any conditional sale or title retention agreement
or lease in the nature thereof or any financing statements filed in any
jurisdiction or any agreement to give any such financing statements (hereinafter
collectively referred to as "Liens"), other than rights of third parties under
leases of tangible personal property used in the ordinary course of business,
liens for taxes not due and payable, and liens granted to the Investor.
(b) Schedule 5.4(b) hereto sets forth all existing
trademarks, trademark registrations, applications for trademark registrations,
trade names and copyrights owned by the Company or used in the Business. The
Company either: (i) owns the entire right, title and interest in and to such
intellectual property free and clear of Liens; or (ii) has the perpetual,
royalty-free, worldwide right to use same.
(c) Except as set forth on Schedule 5.4(c) hereto, no
claim is pending or, to the knowledge of the Company, threatened against the
Company by any person or entity relating to (i) any of such intellectual
property, or its use, or (ii) infringement by the Company on the intellectual
property rights of any person or entity; or (iii) infringement by any person or
entity on the intellectual property rights of the Company. To the knowledge of
the Company, no valid basis exists for any claims referred to in this paragraph
5.4(c).
5.5. NO CONFLICT; BINDING AGREEMENT. (a) The execution and delivery
of this Agreement and the performance of the provisions hereof are duly
authorized by the Company and do not require the consent or approval of any
governmental body or other regulatory authority or any third party not yet
obtained. All Company action for the due execution and delivery of this
Agreement, including the creation, issuance and sale of the Securities, have
been duly and validly obtained or taken. No right of any of the Company's
members or creditors is impaired or infringed upon by this Agreement. This
Agreement constitutes a valid and binding obligation of the Company enforceable
against it in accordance with its terms.
(b) The execution, delivery and performance of this
Agreement and the transactions contemplated herein will not:
(i) constitute a violation of the Certificate of
Formation or the Operating Agreement, each as amended through
the date hereof, of the Company;
(ii) conflict with, result in the breach of,
constitute a default, with or without notice and/or lapse of
time, under, result in being declared void or voidable any
provision of, or result in any right to terminate or cancel
any contract, lease, agreement, license, commitment or
-5-
<PAGE> 6
purchase order to which the Company, any subsidiary or any of
their respective properties is bound;
(iii) constitute a violation of any statute,
judgment, order, decree or regulation or rule of any court,
governmental authority or arbitrator applicable or relating to
the Company or any subsidiary, or the business of the Company
or any subsidiary; or
(iv) result in (A) the acceleration of any debt
or other obligation of the Company or any subsidiary; (B) the
creation of any Lien, charge or other encumbrance upon any of
the assets of the Company or any subsidiary, other than liens
granted to the Investor; (C) the termination or cancellation
or right to terminate or cancel any obligation owed to the
Company or any subsidiary; (D) the creation of any right
adverse to the Company or any subsidiary.
5.6. SUBSIDIARIES; OTHER INVESTMENT. Except as described on
Schedule 5.6 hereto, the Company has at the date hereof no subsidiaries or other
equity investments or other interests in any corporation, limited liability
company, partnership, joint venture or other entity.
5.7. LITIGATION. (a) Except as set forth on Schedule 5.4(c) hereto,
there are no actions, suits, claims or proceedings, whether in equity or at law,
or governmental or administrative investigations pending or, to the knowledge of
the Company, threatened (i) by, against or otherwise involving the Company, any
of the assets of the Company or any asset or property of others leased or used
by the Company or (ii) which questions or challenges the validity of this
Agreement or any action taken or to be taken pursuant to this Agreement. To the
knowledge of the Company, there is no reasonable basis for any such action,
suit, claim or proceeding.
(b) The Company is in substantial compliance with, is not
in default or violation in any material respect under, and has not been charged
with or received any notice at any time of any violation by it of, any statute,
law, ordinance, regulation, decree or order applicable to the business or
operations of the Company.
(c) Neither the Company, nor any of its assets nor the
transactions contemplated under this Agreement, is subject to any judgment,
order or decree entered in any lawsuit or proceeding applicable to the business
and operations of the Company.
(d) To the knowledge of the Company, the Company has duly
filed all reports and returns required to be filed by it with governmental
authorities and has obtained all governmental permits and licenses and other
governmental consents (a list
-6-
<PAGE> 7
of which is included in Schedule 5.7) which are required in connection with the
business and operations of the Company, with the exception of the 1994 Schedule
C and related tax return relating to the Member's involvement with the Company
when it was a sole proprietorship which Schedule C the Member plans to file with
the Internal Revenue Service of the United States (the "IRS") in the form
attached as Schedule 5.8 hereto without any material change therein. All of such
material permits, licenses and consents are in full force and effect, and no
proceedings for the suspension or cancellation of any of them is pending or, to
the best knowledge of the Company, threatened, and none of them will be affected
by the consummation of the transactions contemplated hereby.
5.8. TAXES. (a) To the knowledge of the Company, the Company has
duly filed all tax reports and returns required to be filed in respect of the
business and operations of the Company and its assets as of this date, with the
exception of the 1994 Schedule C relating to the Company when it was a sole
proprietorship which the Member plans to file with the IRS in the form attached
as Schedule 5.8 hereto without any material change therein. All such tax reports
and returns are complete, accurate and in compliance with all relevant laws and
regulations in all material respects, and none has been audited by any
governmental authority. The Company has paid and discharged all federal, state,
local (including all withheld taxes due to date hereof) and foreign taxes,
interest, penalties or other payments required, as the case may be, to be paid
and then currently due as shown on such tax reports and returns or otherwise in
respect of the assets and the business, operations and employees of the Company
as of this date. Notwithstanding the above, the predecessor of the Company has
not filed all of the Form 1099s with the IRS that it was required to file.
(b) The Company has not received notice of any tax deficiency
outstanding, proposed or assessed against it, nor does it have any knowledge of
any basis for any tax deficiency or assessment, nor has it executed any waiver
of any statute of limitations on the assessment or collection of any tax. There
are no tax liens upon, pending against or, to the knowledge of the Company,
threatened against any of the Company's assets.
5.9. BROKERAGE. No finder's fees, brokerage commissions, consulting
fees and like charges are due or to be paid in connection with the transactions
contemplated by this Agreement.
5.10. BUDGET. The Company has delivered an annual budget of cash
flows for the 1996 and 1997 calendar years, including reasonably detailed line
items of expenses and income as set forth on Schedule 5.10 attached hereto. To
the Company's knowledge and belief, the assumptions on which such budget is
based are reasonable in light of the Company's condition and its industry's
market. To the knowledge of the Company, no material change has occurred since
the preparation of such budget to the
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<PAGE> 8
date hereof in any of the facts or data underlying such assumptions or upon
which such budget was based that would make the achievement of such budget by
the Company materially less likely than prior to such change.
5.11. CONTRACTS, ETC. (a) All contracts, leases, agreements,
licenses, commitments and orders to which the Company is a party or by which the
Company or any of its assets is bound ("Contracts") are listed on Schedule 5.11
hereto.
(b) Except as disclosed on Schedule 5.11 hereto, all such
Contracts have been properly assigned to the Company, constitute the legal,
valid and binding obligations of the Company and, to the knowledge of the
Company, the other parties thereto, and there are no existing defaults by the
Company, or, to the knowledge of the Company, by any other party thereto; and no
event, act or omission has occurred which (with or without notice, lapse of time
and/or the happening or occurrence of any other event) would result in a default
by the Company thereunder (or result in there arising any right adverse to the
Company) or, to the knowledge of the Company, in a default by any other party
thereto. No other party to any of such Contracts has asserted the right to
renegotiate, or cancel or terminate prior to the full term thereof, any of the
terms or conditions of any of such Contracts, and, to the Company's knowledge,
no reasonable basis for any such right exists.
5.12. MINUTE BOOKS. Prior to the date hereof, the Company has not
prepared minutes or maintained minute books.
5.13. ERISA. The Company does not and has not maintained any pension
plan or other health, welfare or benefit plan subject to ERISA.
5.14. INSURANCE. Attached hereto as Schedule 5.14 are copies of the
certificates of insurance for policies maintained by the Company. All such
insurance is in full force and effect, and the Company is current in all
premiums.
5.15. THE COMPANY AND PREDECESSORS. The Business was operated prior
to January 1, 1995 as a sole proprietorship of Raymond V. Sozzi, Jr. and during
the 1995 calendar year as a general partnership among Raymond V. Sozzi, Jr.,
Daniel Siegel, G. Todd Eichler, Mark Caputo, Linda Strain, and Tom Haines. The
representations and warranties set forth in Sections 5.3, 5.4, 5.5, 5.7, 5.8,
5.11, 5.13 and 5.16 herein shall be deemed to refer, and all references to the
Company therein shall be deemed to refer, to the Company and such proprietorship
and partnership as they have operated since the inception of the Business.
5.16. DUE DILIGENCE. The information provided by the Company in the
1995-96 Northeast Directory is accurate and complete in all material respects.
The
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Company is unaware of any loss or threatened loss of any business from any
material national or local sponsor. Since January 1, 1995, the Company is not
aware of any event or other development that has occurred that could cause a
material loss or decline in sales of the Business or otherwise material
adversely affect the Business.
5.17. MEMBERSHIP LIST. Attached hereto as Schedule 5.17 is an
analysis of the approximate number of student members of the Program in each
class of membership shown thereon. To the knowledge of the Company, each such
member is a member in good standing and has paid all dues and charges currently
due in regard to his or her class of membership.
5.18. TRADEMARKS. The "Student Advantage" name and logo currently in
use are registered trademarks of the Company, and, to the knowledge of the
Company do not infringe, and are not infringed by, any trademark currently
registered with the Patent and Trademark Office of the United States or in use
in interstate commerce in the United States.
5.19. PASSPORT TRANSACTION. Attached as Schedule 5.19 hereto is a
complete copy of all written communications or parts thereof between or among
the Company, Passport, or any of their officers, directors, partners, employees,
agents or representatives that describe or refer to any claim or any basis for a
claim by Passport against the Company or any of its affiliates (a "Claim
Communication"). The Company and its officers, employees, agents and
representatives have not received any oral communication that, if in writing,
would constitute a Claim Communication, except those that are reflected in the
Claim Communication. Except as set forth in Schedule 5.19, there are no actions,
suits, claims or proceedings by Passport against the Company nor is any
contemplated.
All representations and warranties contained in this Agreement or made
by or on behalf of the Company in writing in connection with the transactions
contemplated herein shall survive the Closing for a period of two years. All
statements contained in any certificate or other instrument delivered by or on
behalf of the Company pursuant hereto or, in connection with the transactions
contemplated herein, shall constitute representations and warranties by the
Company hereunder.
6. SECURITIES LAW MATTERS; INVESTOR'S REPRESENTATIONS.
The Investor represents and warrants to the Company as follows, and
acknowledges that the Company is relying upon such representations and
warranties in connection with the execution, delivery and performance of this
Agreement, notwithstanding any investigation made by the Company or on its
behalf.
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6.1. AUTHORIZATIONS AND BINDING EFFECT. (a) The Investor is a
limited liability company duly organized, validly existing and in good standing
under the laws of the state of its formation and is qualified to transact
business and is in good standing as a foreign limited liability company in the
jurisdictions where it is required to qualify.
(b) This Agreement has been duly executed and delivered by the
Investor and constitutes the legal, valid and binding obligation of the
Investor, enforceable in accordance with its terms. The execution, delivery and
performance of this Agreement does not and will not:
(i) constitute a violation of the Certificate of
Formation or the Operating Agreement, each as amended through
the date hereof, of the Investor;
(ii) conflict with, result in the breach of,
constitute a default, with or without notice and/or lapse of
time, under, result in being declared void or voidable any
provision of, or result in any right to terminate or cancel
any contract, lease or agreement to which the Investor or any
of its properties is bound;
(iii) constitute a violation of any statute,
judgment, order, decree or regulation or rule of any court,
governmental authority or arbitrator applicable or relating to
the Investor; or
(iv) result in the acceleration of any debt or
other obligation of the Investor.
6.2. LITIGATION. No actions, suits, claims, proceedings or
investigations (whether or not purportedly on behalf of or against the
Investor), are pending or threatened against the Investor at law or in equity
that relate to the transactions contemplated by this Agreement or that will
prohibit the Investor from performing the obligations to be performed by it
hereunder.
6.3. SECURITIES MATTERS. The Investor is acquiring the Securities
hereunder for its own account for investment and not with a view to, or for sale
in connection with, any distribution thereof, subject at all times to any
requirement of law that disposition of its property shall at all times be within
its control. The Investor represents that its has no current intention of
distributing or reselling any of the Securities.
6.4. FINANCIAL. As of the date hereof, the Investor's net tangible
assets exceed its total liabilities, as determined from its most recent balance
sheet, which was prepared in accordance with generally accepted accounting
principles, by at least
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$1,000,000, and the Investor and its Princeton Review affiliates have current
assets/cash in excess of $1,000,000.
6.5. BROKERAGE. No finder's fees, brokerage commissions, consulting
fees and like charges are due or to be paid in connection with the transactions
contemplated by this Agreement.
7. COMPANY COVENANTS. The Company covenants and agrees that,
during the term hereof, it shall, unless the Investor shall have otherwise
consented in writing, comply with the following provisions:
7.1. MAINTAIN EXISTENCE, ETC. (a) The Company shall at all times
maintain the business described in Schedule 7.1 attached hereto, keep its and
any material subsidiaries' corporate existence, rights and franchises in full
force and effect and operate in all material respects in compliance with all
applicable laws, rules, regulations, ordinances, orders and decrees. During the
two-year period following the date hereof, the Company shall not, and shall not
allow any subsidiary to, merge or consolidate with, or engage in an equity
exchange with, or acquire the assets out of the ordinary course of business (as
described in Schedule 7.1) of any other person, corporation or other entity (a
"Merger Transaction"), except acquisitions of inventory to be used in the
ordinary course and acquisitions approved by the Board of Directors, after which
the Investor and the Member retain a majority of Membership Interests after
giving effect to such acquisition (or the Company retains a majority of the
equity interests in the case of any subsidiary). After two years following the
execution hereof, the Company shall not engage in a Merger Transaction unless
all members of the Company share ratably according to their Membership Interests
in all consideration and compensation of all kinds paid or delivered, directly
or indirectly, to the Company or any member or any of their affiliates in
connection therewith. If the Member and the Investor hold together less than a
majority interest in the surviving entity following a Merger Transaction, the
Company shall provide in all agreements in connection therewith that the
Investor shall have, at its sole discretion, the option to sell, and the Company
and the post-merger entity shall agree to purchase, the Investor's Membership
Interest in the Company, such option being exercisable by written notice to the
Company within 30 days following the consummation of such Merger Transaction at
a price equal to the Investor's Membership Interest multiplied by the fair
market value of the Company as a whole determined in accordance with the
procedure described in Section 9.2 of the Operating Agreement; provided,
however, that the minimum price shall be the greater of (i) the amount of the
Investor's equity capital contributions less cumulative cash distributions to
the Investor in excess of the Investor's allocable portion of net profits, and
(ii) the amount of the Investor's capital account in the Company. If the
Investor shall choose to exercise such option, then the Investor may also
terminate the provisions of Section 9 hereof.
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(b) The Company shall not at any time authorize, issue or
sell any equity security or right to acquire any equity security without the
approval of the Board of Directors.
(c) The Company shall not liquidate, wind up or dissolve
(or suffer any liquidation or dissolution), convey, sell, lease, transfer or
otherwise dispose of, in one transaction or a series of transactions, all or any
substantial part of its business, property or assets whether now owned or
hereafter acquired other than in the ordinary course of business as described in
Schedule 7.1 (an "Asset Transaction") PROVIDED, HOWEVER, that with the prior
approval of the Board of Directors, the Company may only engage in an Asset
Transaction during the two years from the date hereof if the Company is valued
at $2,000,000 or more, net of any debt assumed by the purchaser, subject to a
right of first refusal by the Investor, described in Section 7.1(d) hereof, and
thereafter, subject only to the right of first refusal contained in Section
7.1(d); PROVIDED FURTHER that the Company may not enter into any transaction
described in this Section 7.1(c) with Stanley H. Kaplan Educational Center,
Ltd., its subsidiaries, successors, assigns or affiliates or any other company
involved in the test preparation business and which holds a 10% market share of
such business.
(d) (i) If the Company receives an offer from an
unrelated third party to engage in an Asset Transaction (an "Offer"), and the
Company elects to engage in such Asset Transaction, it shall deliver notice of
such election (the "Offer Notice") in writing to the Investor. Such Offer Notice
shall state all of the economic and principal legal terms of such Offer in
detail and the identity, business address and telephone number of the offeror
("Offeror") and to whose attention inquiries regarding the Offer should be sent,
and any parent, subsidiary or affiliated person or entity involved in the Offer,
or in any way related to the Offeror, and the Offer Notice shall be deemed an
offer by the Company to engage in such Asset Transaction with the Investor on
the same terms as offered to such Offeror (which shall include any and all
consideration that is agreed in connection therewith, or at or about the same
time, to be paid in respect of services or restrictive covenants) for
consideration equal to the total consideration set forth in the Offer Notice.
(ii) Promissory notes included in the Offer as
part of the consideration offered may be made on the same terms by the Investor
exercising its option. The cash value of any consideration included in the Offer
other than cash or notes shall be finally determined based on the fair market
value of such consideration. Such cash value of such consideration shall be
deemed to be part of the Offer terms.
(iii) The Investor, upon receipt of such Offer
Notice, shall have the option to engage in such Asset Transaction with the
Company at 105% of the purchase price stated above and on the terms specified
herein, provided however, that
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if the Offeror is a Competitor (as defined in Section 9.10(a) hereof), then the
Investor shall pay only the purchase price. The option shall be exercisable by
written notice within thirty (30) days from the date of the receipt of the Offer
Notice. The Investor shall send written notice as to whether it elects to
exercise its option. The Company shall not consider a new offer from the Offeror
or from another party after notice has been sent by the Investor of its
intention to exercise its option.
iv) Notwithstanding subsection (iii) above, if
the Offer is modified or altered in any way after the Offer Notice has been sent
to the Investor, then the Company shall send another Offer Notice which shall be
deemed a new offer by the Company to engage in an Asset Transaction with the
Investor at a price and on the terms set forth in the new Offer Notice. The
Investor shall then have thirty (30) days from the date of delivery of the new
Offer Notice to send written notice as to whether it elects to exercise its
option.
(e) [OMITTED]
7.2. INSURANCE. The Company shall maintain insurance against such
risks and at least in such amounts as are now carried by the Company and in such
other amounts as are customarily carried by companies similarly situated. The
Company shall also maintain keyman term life insurance on the life of Raymond V.
Sozzi, Jr. in the amount of $500,000. All such insurance shall be effected under
valid and enforceable policies issued by insurers of recognized responsibility.
7.3. RESTRICTIONS ON DISTRIBUTIONS, REDEMPTIONS, etc. The Company
shall, on or before April 15th of each year, distribute pro rata among its
members an aggregate amount equal to 45% of its cumulative (after January 1,
1996) post-tax profit (as shown on its tax return for the prior calendar year).
The Company may make additional distributions pro rata among its Members upon
the approval of the Board of Directors up to, in the aggregate, 75% of such
cumulative post-tax profit. The Company shall not otherwise pay any dividend or
distribution or make any payment on account of the purchase, redemption or other
retirement of any securities issued by it or of any warrants, options or similar
rights to purchase its securities, or make any other distribution in respect of
its securities, either directly or indirectly, or prepay or redeem in whole or
in part, either directly or indirectly, any equity security.
7.4. PROHIBITED INVESTMENT, CONTRACTS, ETC. (a) Except with
approval of the Board of Directors, the Company shall not, directly or
indirectly, purchase, sell or lend/borrow any securities or other property from
or to any officer, director (except a director designated by the Investor) or
employee of the Company, or any relative or any person or entity in any other
way affiliated, directly or indirectly, with any of them.
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(b) The Company shall not make any expenditure or series
of related expenditures, or agree or commit to do same: (i) for expenditures
outside of the business described on Schedule 7.1, in excess in the aggregate of
$25,000 for the first six months following the date hereof, or $50,000 per year;
or (ii) without the approval of the Board of Directors, for expenditures within
the business described on Schedule 7.1, in excess in the aggregate of $75,000
per year.
(c) Any provision herein to the contrary notwithstanding,
the Company may make loans (including to employees of the Company) in an
aggregate amount only up to $25,000 with interest at 6%, repayable in the case
of employees from salary, bonuses and distributions, if applicable.
7.5. BOARD OF DIRECTORS. The Company's Board of Directors shall be
composed of no less than three nor more than seven persons. If the number of
Directors is five or fewer, the Company shall cause to be elected to the
Company's Board of Directors one person designated by the Investor in its
discretion, and if the number of Directors is greater than five, the Company
shall cause to be elected to the Company's Board of Directors two persons
designated by the Investor in its sole discretion. Any provision in the
Operating Agreement to the contrary notwithstanding, (a) the Company shall
provide reasonable advance notice to the designated director(s) of the Investor
of each meeting, whether regular or special, of the Board of Directors of the
Company, (b) no Board Committee may be constituted without one of the designated
directors of the Investor, and (c) the Company hereby waives any bond with
respect to the Investor's designated directors that might be required under the
Operating Agreement. The Board of Directors of the Company shall hold meetings
at least semi-annually. The Investor may call meetings of the Members or the
Board as long as the Investor holds at least 10% of the issued and outstanding
Membership Interests in the Company. No meeting of the Members or the Board to
take action on behalf of the Company shall be held without the Investor's
designee in attendance, or afforded an opportunity to attend by telephone. No
meeting of the Members shall take place without advance notice being given to
the Investor or the Investor's designee.
7.6. PROHIBITED CONTRACTS. The Company shall not and shall not
allow any subsidiary to enter into any agreement, commitment, arrangement,
transaction or understanding that (i) would breach, or make impossible the
Company's compliance with any of the terms of this Agreement, or (ii) would
involve as a party thereto any person or entity affiliated in any way, directly
or indirectly, with the Company or any Member, officer or director of the
Company, on terms that impose any obligation or provision on the Company that is
not consistent with customary practice, or is not commercially fair and
reasonable and beneficial to the Company, or is in any way less favorable to the
Company than would have been obtained from an arms-length
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negotiation with an unrelated party desiring to enter into such relationship
with the Company.
7.7. FINANCIAL STATEMENTS AND NOTICES. (a) The Company shall keep,
and shall cause each of its subsidiaries to keep, true books of record and
account in which full, true and correct entries in accordance with sound
accounting practice will be made of all income, expenses, dealings and
transactions in relation to its business and activities.
(b) The Company shall deliver to the Investor:
(i) as soon as practicable, and in any event
within 45 days after the close of each interim six-month
period of the Company (75 days from the close of each fiscal
year period), (A) a balance sheet of the Company as of the end
of such period and (B) statements of operations, changes in
financial position and members' equity of the Company for such
six-month period, in each case setting forth in comparative
form the corresponding figures for the comparable period in
the preceding fiscal year, prepared from the books and records
of the Company in accordance with generally accepted
accounting principles consistently applied (in the case of an
interim six-month period, subject to normal year-end
adjustments) and in reasonable detail and (in the case of
year-end statements) reviewed (or, if the Company had in
excess of $4 million of revenues in such year, audited) by the
independent certified public accountants selected by the
Company and approved by the Investor, such approval not to be
unreasonably withheld;
(ii) as soon as practicable, and in any event
within 30 days after the close of each month, (A) an unaudited
balance sheet of the Company as of the end of such month and
(B) unaudited statements of operations and changes in
financial position of the Company for the month and the
portion of the fiscal year ended with the end of such month,
in each case setting forth in comparative form the
corresponding figures for the comparable period one year prior
thereto, if available, prepared from the books and records of
the Company in accordance with generally accepted accounting
principles for monthly financial statements consistently
applied (subject to normal year-end adjustments);
(iii) by January 15th of each year, a
month-by-month budget in reasonable line item detail for the
upcoming year, together with monthly cash flow projections for
such year, which shall be reviewed, revised if appropriate and
approved by the Board of Directors on or before January 31st
of such year; and
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(iv) as soon as practicable, such other financial
and business data as may reasonably be requested by the
Investor and available to the Company without additional
material expense (which shall not include personnel time to
compile and organize same).
(c) The Investor may require the Company to prepare
audited financial statements as reasonably needed by the Investor at Investor's
expense.
7.8. INSPECTION. The Investor may, by its designated
representative, at its expense visit and inspect any of the properties of the
Company and its subsidiaries, examine its books of account and discuss its
affairs, finances and accounts with, and be advised of the same by, its officers
and auditors, at such reasonable times and intervals as the Investor may desire.
7.9. EMPLOYMENT ARRANGEMENTS. The Company shall not, and shall not
allow any subsidiary to, enter into any arrangement or obligation, written or
oral, or otherwise agree to hire a chief operating officer or a chief financial
officer without the approval of the Board of Directors. The Company shall not
change the compensation paid to the Member or enter into a new employment,
consulting or similar agreement with the Member.
7.10. NO AMENDMENTS TO COMPANY DOCUMENTS. The Company shall not
amend its Certificate of Formation or the Operating Agreement or the Employment
Agreement or Unit Option Agreement.
7.11. ACCRUAL TO MEMBER. The accrual on the Balance Sheet in the
amount of $52,000.00 payable to the Member shall be paid no earlier than three
years from the date hereof, provided that the Company has excess cash available.
The Member agrees that such debt shall be subordinated debt, junior to the
claims of all other creditors of the Company, including other members of the
Company.
7.12. TERM OF COVENANTS. The covenants in this Section 7 will
terminate in the event that the Investor owns and has a right to acquire in the
aggregate less than 5% of the issued and outstanding Membership Interests,
PROVIDED, HOWEVER, if the Investor continues to perform its obligations under
Section 9 hereof, the Investor shall have the right to designate one director to
be elected to the Board of Directors of the Company pursuant to Section 7.5
hereof; Section 7.2 hereof shall remain in effect until all promissory notes are
repaid to the Investor; and Section 7.7 shall remain in effect as long as
Investor continues to own a Membership Interest.
8. PREEMPTIVE RIGHT AND MEMBER COVENANTS.
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8.1 PREEMPTIVE RIGHT. If the Board of Directors of the Company
approves the issuance and sale of any securities or the Company otherwise plans
to issue any securities, including, without limitation, as part of a merger,
consolidation, acquisition, Asset Transaction or similar transaction, then the
Investor shall have the right during the 20-day period after such approval to
subscribe, by sending notice of its intent to subscribe, for up to that percent
(the preemptive right percent), which shall equal the percent of membership
interests that would be owned by the Investor upon the exercise of all those
options to acquire membership interests in the Company then owned by the
Investor, of all of such securities to be issued or sold on the same terms as
they are to be sold to other purchasers. The closing of the Investor's purchase
under this Section 8.1 shall be concurrent with the closing of the sale of such
securities to other purchasers on adequate notice to the Investor. This Section
8.1 shall terminate upon the earliest to occur of: (a) the sale in a public
offering registered under the Securities Act of 1933, as amended, of Membership
Interests, either in their present form or as represented by shares of common
stock, or hereafter issued to the Investor; or (b) the listing of the Membership
Interests, either in their present form or as represented by shares of common
stock, on any national stock exchange (as described under Section 12(b) of the
Securities Exchange Act of 1934, as amended) or on the NASDAQ Stock Market.
8.2. COVENANTS BY MEMBER. The Member covenants and agrees that,
during the term hereof, he shall, unless the Investor shall have otherwise
consented in writing, comply with the following provisions:
(a) TRANSFER BY THE INVESTOR. The Member agrees to vote
his Membership Interests and all Membership Interests under his control to
consent to any proposed transfer or pledge of Membership Interests by the
Investor, to the extent such consent is required under the Operating Agreement;
provided, however, that such consent shall not be deemed a waiver of any other
provisions of the Operating Agreement, including the provisions of Section 9.4
thereof relating to rights of first refusal.
(b) RECONSTITUTION FOLLOWING DISSOLUTION. [Omitted.]
(c) ENFORCEMENT OF THIS AGREEMENT. The Member agrees to
vote his Membership Interests and all Membership Interests under his control in
accordance with, and to take all reasonable steps necessary to effect, the
provisions of this Agreement.
(d) SIMILAR HOLDINGS. The Member shall not obtain an
equity interest in or engage personally in any transaction or business
arrangement with any person or entity that supplies products or services to a
customer base of high school, college and/or graduate school students or that
transacts business with the Company, or any
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affiliate of such person or entity, nor shall the Member enter into any
transaction utilizing the Company's list of members, prospects or distribution
network, unless, in the case of an equity interest, the Investor is provided
with the opportunity to obtain a similar equity interest or a share of the
proceeds of such transaction on the same terms as the Member in an amount pro
rata with the relative percentage of Units of the Company held by the Member and
the Investor.
8.3. MASTER CARD BONUS. If, within ninety (90) days of the date
hereof, the Company completes a transaction with MasterCard International and
its affiliates ("MC"), as evidenced by the execution of a binding agreement or
the payment by MC of more than $50,000 on account and the total net cash
consideration paid by MC to the Company on or prior to March 31, 1997 in respect
of memberships that expire and other benefits that are delivered on or prior to
August 31, 1997 (the "96/97 Consideration"), in connection with such transaction
exceeds $300,000, and the Company's profit on such transaction, accounting for
all costs in connection therewith (except no allocation shall be made for the
Member's salary, and the Company's overhead shall be allocated only to the
extent an increase in overhead is attributable to such MC transaction), exceeds
25% of the total consideration paid and to be paid in connection therewith, and
the Company (together with Student Advantage Partnership) meets or exceeds,
after payment of all bonuses, the cash flow projected for the 1996 calendar
year, as indicated on Schedule 5.10 hereto, then the Company shall pay to the
Member or employees of the Company designated by the Member 10% of the
difference of the total 96/97 Consideration minus $300,000 as follows: one-half
as an advance upon receipt of the money from MC if the conditions described
above are reasonably projected to be satisfied, and one-half upon confirmation
that the conditions provided for herein have been satisfied. At least 30% of the
money due under this Section 8.3 shall be distributed as a bonus to employees
other than the Member and his spouse.
9. MARKETING.
9.1. TRANSFER OF STUDENT ACCESS. The Investor shall phase out its
Student Access membership program by sending written notice to Student Access
members to the effect that Student Access operations have been taken over by the
Company and soliciting such Student Access members to join the Company's
Program. The Investor shall use reasonable efforts to obtain the consent of its
sponsor/vendors to the assignment of sponsorship to the Company.
9.2. WEBSITE MARKETING. The Investor shall provide to the Company
space on its online electronic sites (to the extent permitted by the applicable
online service) or a link to the Investor's online electronic sites, including,
without limitation, the Investor's own internet web site, to describe in general
the benefits of the Program and how to enroll in the Program. The Company shall
provide to the Investor space on the Company's online electronic sites when
created (to the extent permitted by the
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applicable online service) or a link to the Company's online electronic sites
when created, including, without limitation, the Company's own internet web
site, when created, to describe the products and services offered by the
Investor and its affiliates and how to obtain such products and services.
9.3. BOOK INSERT MARKETING. The Investor shall, to the extent
permitted under its publishing contracts and other contracts regarding its
books, include a description, on the inside front or back cover of those books
or on an insert in such book that the Investor reasonably deems to be
appropriate among the books published by the Investor, of the general benefits
of the Program and how to enroll in the Program.
9.4. BOOK TITLES. The Investor shall as soon as reasonably
practicable change the title of those books that are listed on Schedule 9.4
hereto and which are published by the Investor and which include the phrase
"Student Access" by deleting "Student Access" and inserting "Student Advantage."
9.5. EXCLUSIVITY BY THE INVESTOR. (a) The Investor shall not offer,
sell or distribute to high school, college or university students materials that
solicit enrollment in a program that is operated as a business that is primarily
a student membership and discount service organization which offers a broad
range of products and services supplied by independent sponsors and vendors
through its membership cards and coupon books similar to the Program and which
competes with the Program as long as marketing arrangements continue under this
Section 9 plus six months thereafter, provided the Program generally provides
products and/or services approximately comparable with other
student-membership/discount-service organizations. This Section 9.5 shall not
apply to a discount or sponsorship offer submitted to the Company by the
Investor and declined by the Company, after which the Investor may make the same
offer through a competing organization. Except as set forth in this Section 9.5,
the Investor shall not be bound by Section 9.7 of the Operating Agreement.
(b) The Investor shall not, so long as the Investor
engages in the marketing arrangements with the Company as described in this
Section 9 and for a term of six months thereafter, engage in or plan or prepare
to engage in operations as a business that is operated primarily as a student
membership or discount service organization and that competes with the Program.
Provided that, after termination of the marketing arrangements in this Section
9, if the Company declines to waive the provisions of this Section 9.5 against
the Investor, the Investor shall have the option to require the Company to buy
back all of its Membership Interests in the Company at the price set forth in
Section 7.1(a).
9.6. OFFER BY THE INVESTOR. The Investor shall cause Princeton
Review Operations, L.L.C. ("Operations") to offer to members of the Program a
reasonable discount or other benefit on the products or services of the Investor
or an affiliate, such
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as a free book, in the Investor's reasonable discretion, and subject to such
conditions as the Investor shall set from time to time.
9.7. LIMITATION ON USE; COST OF MAILINGS.
(a) Subject to limitations set forth in agreements under
which the Investor shall be bound (provided that the Investor shall not enter
into any agreement that shall frustrate the purposes of, or prohibit the
achievement of, the intent of this Section 9.7(a)), the Investor shall cause
Operations to give the Company a list of its prospects, which shall be used only
for marketing membership in the Program. The Company shall reimburse the
Investor for any third-party disbursement costs incurred in providing such list
to the Company. The Company shall obtain the prior written approval of the
Investor before using the Investor's name on any of its marketing tools.
(b) The Company shall keep the list of members in the
Program derived from the Investor's promotions segregated from its full list of
members, and shall not use such segregated list or distribute any materials to
the members on such segregated list except for materials distributed to all
members in the Program that serve only to inform members of the benefits of
membership or, with the prior written approval of the Investor which shall not
be unreasonably withheld, for disclosures in the ordinary course of business (as
described in Schedule 7.1) pursuant to a written agreement restricting any
further dissemination reasonably satisfactory to the Investor, provided however,
that the Investor's members are not identified as such and are integrated into
the list of all of the Program's members.
9.8. MEMBERSHIP AT COST TO THE INVESTOR. (a) The Investor shall be
allowed to distribute memberships to students enrolled in The Princeton Review
courses, and the Investor shall pay for such memberships at the cost thereof as
determined in accordance with Schedule 9.8 attached hereto.
(b) To the extent that mailings to the Program's members
or any materials included with such mailings generate revenues for the Company,
then the Investor shall receive the portion (represented by a fraction, the
numerator of which is the number of the Investor's students to whom the mailing
was sent, the denominator of which is the total number of members to whom the
mailing was sent) of those revenues as reimbursement for the printing and
postage costs incurred by the Investor, PROVIDED THAT, to the extent that the
Investor does not pay for all materials being mailed (the "Uncovered Materials")
(either because such materials are not included in the packet of materials being
mailed to the Investor's members or otherwise), then the Investor shall receive
that portion of the revenues in excess of the variable cost of printing the
Uncovered Materials. The Investor shall not pay for the mailing if the third
party's payments are sufficient to cover the cost of a mailing to all members of
the
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<PAGE> 21
Program. The Investor shall have the option to distribute such mailing to its
members at its own expense and shall have the option to print such mailing
materials at its own expense.
9.9. PROMOTION OF INVESTOR. The Company agrees to use its best
reasonable efforts to promote the Investor's products to its members through its
mailings, directory, membership cards and other materials.
9.10. EXCLUSIVITY BY THE COMPANY. (a) The Company shall not allow
any other person or entity that engages in, or is planning or preparing to
engage in, the development, production, marketing, sale or distribution of
products or services (x) for preparation for standardized tests, or (y)
competitive with Trademark (hereinafter described) labelled books or software,
or courses covering the same material (a "Competitor") to provide any benefit to
members of the Program or otherwise participate in the Program or to advertise
in the Directory or any other materials distributed to members of the Program so
long as (i) the Investor engages in the joint marketing arrangements with the
Company as described in this Section 9 or (ii) the Investor owns 5% or more of
the Membership Interests of the Company; provided that the Investor generally
provides test preparation services approximately comparable to services provided
by its competitors.
(b) Neither the Company nor the Member, so long as (i)
the Investor engages in the marketing arrangements with the Company as described
in this Section 9 or (ii) the Investor owns 5% or more of the Membership
Interests of the Company and for a period of six months thereafter, shall engage
in or plan or prepare to engage in the development, production, marketing, sale
or distribution of products or services for (x) preparation for standardized
tests, or (y) competitive with Trademark (hereinafter described) labelled books
or software, or courses covering the same material.
9.11. LICENSE. The Company hereby grants to the Investor and its
affiliates, a perpetual, worldwide, royalty-free license to use the "Student
Advantage" name and current logo, as the same may be changed from time to time
(the "Trademarks"), but only on books, software or electronic media products
directed to high school, college and university students (the "Products"). The
license granted hereunder shall be exclusive with respect to the Products so
long as (a) the Investor engages in the joint marketing arrangements with the
Company as described in this Section 9 or owns 5% or more of the Membership
Interests, and (b) for a period of one year thereafter. The Investor shall
comply with all laws pertaining to marking requirements for maintaining
trademarks. The license granted hereunder shall not be transferrable. The
Company shall indemnify and hold harmless the Investor from any Indemnifiable
Damages (as defined in Section l0.l(a)) incurred by the Investor or its
affiliates as a result of or relating to any claim that the Trademarks and/or
the use thereof infringe upon the rights of any party. The Investor may not add
or delete books, software or electronic
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<PAGE> 22
media products to the book titles listed on Schedule 9.4 without the Company's
prior approval, which may not be unreasonably withheld.
9.12. TERM OF JOINT MARKETING. The provisions of this Section 9
shall continue unless (a) substantially all of the assets of the Company are
acquired pursuant to Section 7.1(c) hereof or if the Investor is required to
sell its interest in the Company together with the Member pursuant to the terms
of the Co- Sale Agreement, and (b) either Investor or the purchaser reasonably
concludes that its continued participation in joint marketing with the other
party hereunder would result in a material adverse effect on such company's
reputation.
9.13. USE OF TRADEMARKS AND LOGOS. If either party hereunder intends
to use any trademark and/or logo of the other party, then it shall submit such
proposed use in writing to such other party for review, and the submitting party
shall not use such trademark and/or logo without the written approval of such
other party, which approval shall not be unreasonably withheld and shall be
deemed given by such other party 5 business days after the submission of an
intended use unless such other party notifies the submitting party of its
objection, specifying in reasonable detail the basis therefor. Each party shall
comply with the other party's reasonable standard guidelines for the use of its
trademarks and/or logos.
9.14. USE OF MEMBERSHIP LIST. The Company shall deliver to the
Investor in a reasonably prompt manner, at the request of the Investor, a
current list of members in, and prospects for the Program, including their
addresses and phone numbers and, with the approval of the Company, not to be
unreasonably withheld, complete contents of its pertinent data base to the
extent available, in such electronic format as the Investor shall reasonably
request to enable it to conduct a direct mail campaign to members and prospects.
The Investor shall reimburse the Company for any third-party disbursement costs
incurred in providing such list to the Investor. The Investor shall use such
list only to promote books, courses, videos and software supplied by the
Investor and its business entity affiliates. The Investor shall not conduct
mailings to the list more than four times per year without the written approval
of the Company, which may not be unreasonably withheld. Such mailings are
subject to limitations set forth in agreements under which the Company shall be
bound (provided that the Company shall not enter into any agreement that shall
frustrate the purposes of, or prohibit the achievement of the intent of, this
Section 9.14). The Investor must receive permission from the Company, which
shall not be unreasonably withheld, to use the Company's name on any such
mailings.
9.15 ASSUMPTION OF MARKETING PROVISIONS. The Company shall not
enter into any Asset Transaction for the sale of a majority of the assets of the
Company in one or a series of transactions unless the purchaser shall assume all
provisions of Section 9 hereof.
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<PAGE> 23
10. REMEDIES.
10.1. INDEMNIFICATION BY THE COMPANY AND THE MEMBER.
(a) The Member and the Company, subject to the
limitations expressly set forth in Sections 10.6 and 10.7 hereof, shall defend,
hold harmless and indemnify the Investor from any and all losses, liabilities,
proceedings, claims, settlements, judgments, fines, assessments, damages and
expenses (including reasonable attorneys' fees and investigation and litigation
expenses, whether arising out of a third party claim or relating to recovering
Indemnifiable Damages) (collectively, together with amounts referred to in
Section 10.3 hereof, the "Indemnifiable Damages") that the Investor suffers or
incurs in whole or in part by reason of, or which may arise out of: (i) the
inaccuracy or breach of any of the representations and/or warranties of the
Company in this Agreement and (ii) the breach by the Company and/or the Member
of any of the covenants or warranties herein.
(b) The Member and the Company shall defend, hold
harmless and indemnify the Investor from any and all Indemnifiable Damages
incurred directly by the Investor or its agents and arising out litigation
brought by Passport against the Investor or its agents. Any payment by the
Company under this Section 10.1(b) shall constitute Reduced Value (as defined in
Section 10.3 hereof). This Section 10.1(b) shall not apply to any damages
allegedly caused to the Investor by reason of claims made by Passport against
the Company.
10.2. INDEMNIFICATION BY INVESTOR. The Investor shall defend, hold
harmless and indemnify the Company from any and all Indemnifiable Damages that
the Company suffers or incurs by reason of: (i) the inaccuracy and/or breach of
any of the representations and warranties of the Investor herein; or (ii) the
breach by the Investor of any of the covenants and/or warranties herein.
10.3. CALCULATION OF DAMAGES. To the extent that a misrepresentation
or breach of warranty has occurred or occurs hereunder, and the Company's fair
market value as determined upon accounting for the true and correct facts is
less than the fair market value of the Company as determined based on the facts
as represented or warranted herein (the difference referred to herein as the
"Reduced Value"), then the Investor shall be deemed to be damaged by an amount
equal to its equity interest in such Reduced Value, and such damages, if any,
shall be deemed to be included in Indemnifiable Damages hereunder. The amount of
any payment by the Company in satisfaction of its indemnification liability
under Section 10.1 shall be deemed to constitute further "Reduced Value" under
this Section 10.3.
10.4. NOTICE AND RIGHT TO DEFEND THIRD PARTY CLAIMS.
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<PAGE> 24
(a) Promptly upon receipt of notice of any third party
claim, demand or assessment or the commencement of any suit, action or
proceeding in respect of which indemnity may be sought on account of an
indemnity agreement contained in this Section 10, the party seeking
indemnification (the "Indemnitee") shall notify in writing, within sufficient
time to respond to such claim or answer or otherwise plead in such action, the
party from whom indemnification is sought (the "Indemnitor") thereof; provided,
however, that failure or delay to supply such notice shall not relieve
Indemnitor of Indemnitor's indemnification obligation hereunder except to the
extent that Indemnitor is actually prejudiced by such failure or delay.
(b) In case any claim, demand or assessment is asserted
or suit, action or proceeding commenced against an Indemnitee (collectively a
"Claim") and it notifies the Indemnitor of the commencement thereof, if the
Indemnitor acknowledges its indemnification obligations therefor hereunder, then
the Indemnitor shall be entitled to participate therein, and, to the extent that
it may wish, to assume the defense, conduct or settlement thereof; provided,
however, that if the Indemnitee has any separate defense from those of the
Indemnitor, the Indemnitee shall have the right to be represented by its own
counsel at the Indemnitor's expense. The Indemnitee shall have the right in any
event to participate in any such defense with its own counsel at its own
expense.
(c) Anything to the contrary herein notwithstanding,
prior to finally settling any such Claim, the Indemnitor shall give to the
Indemnitee prompt notice of its intention to settle same and the terms of such
proposed settlement and acknowledging its indemnification responsibility
therefor hereunder. If the Indemnitee shall object to such proposed settlement
within 10 days, then the Indemnitee shall thereafter, at its sole expense,
assume the control and defense of such claim, suit, action, investigation or
proceeding and in such event the liability of the Indemnitor shall be limited to
the amount for which the same could have been settled as proposed by the
Indemnitor. If the Indemnitee does not object to the terms of the proposed
settlement within the aforesaid 10-day period, then the Indemnitor shall have
the right to consummate such proposed settlement upon the terms set forth in the
aforesaid notice. If Indemnitor acknowledges in writing its obligation to
indemnify Indemnitee with respect to a Claim, then Indemnitee shall not settle
such Claim without Indemnitor's prior written consent.
10.5. PAYMENT OF AMOUNTS DUE. The amount of any indemnifiable
damages conceded or determined to be due shall be paid to Indemnitee within
twenty (20) business days from the date so conceded or determined.
10.6. BASKET AND LIMITATION FOR INDEMNIFICATION. Any other provision
of this Agreement to the contrary notwithstanding, the liabilities of the
parties under this Agreement (other than pursuant to Section 10.1(b) hereof)
shall be limited in that no
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<PAGE> 25
party shall have any liability to the other party hereunder that arises from any
nonwilful and nonfraudulent default, breach of warranty, misrepresentation,
omission or failure, including any liability pursuant to Section 10.2 or 10.3
hereof, unless the aggregate amount of all indemnifiable damages incurred by the
indemnitee arising from all such innocent defaults, breaches, misrepresentation,
omissions and failures by the Indemnitor, exceeds $25,000, and in such event,
the Indemnitor shall be required to pay only the amount by which such aggregate
indemnifiable damages exceed $25,000, except that such limit shall not be
applicable with respect to claims based on breach of warranty or
misrepresentation under Section 5.3(d), nor shall such claims be counted in
satisfying such $25,000 basket; PROVIDED, HOWEVER, that claims consisting of the
first $20,000 of liabilities referred to in clause 5.3(d) (iii) shall be counted
in satisfying such $25,000 basket.
10.7. LIMITATION FOR INDEMNIFICATION BY THE MEMBER. Any other
provision in this Agreement to the contrary notwithstanding, except for fraud,
the Investor shall have no recourse against the Member personally and the Member
shall not be liable for any amount under this Agreement except as to his
membership interest in the Company, which is pledged pursuant to the Pledge
Agreement. For the purposes of satisfying any such liability through transfer of
a fraction of the Member's membership interest in the Company, each 1 Unit of
membership interest of the Member (assuming 10,000 Units Outstanding at the
Closing) together with the portion of the Member's capital account associated
therewith shall be valued at $109.37 per Unit, or, if any, the purchase price
per each 1 Unit of membership interest in the most recent arms-length negotiated
sale after the date hereof of membership interests by the Company to an
unaffiliated party for a purchase price in excess of $[50,000].
10.8. AUDIT RIGHT. The Investor shall have the right, not more often
than semi-annually to conduct an audit of the Company's books and records on
reasonable advance notice at the office of the Company at the Investor's expense
to insure compliance with the terms of this Agreement; provided, however, that
if such audit uncovers any underpayment of amounts owed to the Investor in
excess of 5%, or if it uncovers any other material breach or default hereunder,
then the Company shall reimburse the Investor for the reasonable costs of such
audit.
10.9. LIMITATIONS ON REPRESENTATIONS AND WARRANTIES. The Investor
hereby acknowledges that budgets and forecasts are inherently speculative and
that the actual future results of operations of the Company may be materially
different from those set forth in the budget attached hereto as Schedule 5.10.
The Investor further acknowledges that neither the Company nor the Member has
made or is making any representations and warranties other than as set forth in
this Agreement and the Schedules and Exhibits attached hereto.
11. ADDITIONAL PROVISIONS.
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<PAGE> 26
11.1. MODIFICATION OF AGREEMENT; CONSENT. This Agreement and the
documents and instruments referred to herein constitute the entire agreement
among the parties hereto with respect to the subject matter hereof. Any
provision in this Agreement to the contrary notwithstanding, changes in or
additions to this Agreement may be made, and/or compliance with any covenant or
condition herein set forth may be omitted, only pursuant to a written document
executed by or on behalf of the parties hereto.
11.2. STAMP, TAX AND DELIVERY COSTS. The Company shall pay all stamp
and other taxes, if any, which may be payable in respect of the issuance and
sale of any Securities to the Investor, and shall save the Investor harmless
against any loss or liability resulting from nonpayment or delay in payment of
any such tax.
11.3. EXPENSES. Except as explicitly set forth elsewhere in this
Agreement, each of the parties hereto agrees to pay its own expenses incurred in
connection with the transactions contemplated herein.
11.4. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and inure to the benefit of the parties hereto, and their respective successors
and assigns, except this Agreement and the obligations hereunder may not be
assigned by the Company without the consent of the Investor.
11.5. NOTICES. All notices and communications provided for hereunder
shall be deemed to be given when personally delivered or mailed with sufficient
postage by registered or certified mail, return receipt requested, or by
receipted courier service or sent by a nationally recognized overnight courier
procuring a return receipt;
(a) if to the Company, 321 Columbus Avenue, Boston, MA
02116, or at such other address as may have been furnished to the Investor in
writing by the Company, marked "Attn: President," with a copy to Jeffrey N.
Siegel, Esq., Shack & Siegel, P.C., 530 Fifth Avenue, New York, NY 10036 or
(b) if to the Investor, 2315 Broadway, New York, NY
10024, marked "Attn: Mr. John Katzman," or at such other address as may be
furnished to the Company by the Investor in writing, with a copy to Seth A.
Akabas, Esq., Akabas & Cohen, 488 Madison Avenue, Sixth Floor, New York, NY
10022 or
(c) if to the Member, 300 Columbus Avenue, #2, Boston, MA
02116, or at such other address as may have been furnished to the Investor.
Any notice or other communication so addressed and so sent shall be
deemed to have been given when mailed.
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<PAGE> 27
11.6. GOVERNING LAW. This Agreement is made in the State of New York
and shall be governed by and construed in accordance with the laws of said
State.
11.7. COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed an original and all of which together shall
constitute one and the same instrument.
11.8. ENFORCEMENT. As a further inducement to the purchase of the
Securities, the Company, acknowledging that the Investor is relying on the
covenants in this Section 11.8, covenants and agrees that in any action or
proceeding brought on, under or in connection with or relating to this
Agreement, the Securities or any other document executed or matter Contemplated
in connection herewith or therewith, shall and does hereby expressly waive trial
by jury. The Company (i) agrees that any legal suit, action or proceeding
arising out of, under, in connection with or relating to this Agreement, the
Securities or any other document executed or matter contemplated in connection
herewith or therewith, may be instituted in any Federal or State Court in the
State of New York, City of New York; (ii) waives any objection the Company may
have now or hereafter to the laying of the venue of any such suit, action or
proceeding; (iii) irrevocably submits to the jurisdiction of any such Court in
any such suit, action or proceeding; (iv) agrees not to bring any such suit,
action or other proceeding in any other jurisdiction. and (v) consents to the
effecting of service of process in any such suit by the means provided for
notice under Section 11.5 herein.
11.9. TERM. All of the covenants and other terms of this Agreement
shall survive in full force and effect so long as the Investor owns any of the
Securities, except as specifically set forth herein.
11.10. CONSTRUCTION. (a) The descriptive headings of this Agreement
are for convenience only and shall not control or affect the meaning or
construction of any provision of this Agreement.
(b) Any representation or warranty made to the knowledge
of any parties hereto, or as to what any such party is aware of, or statements
of similar purport, shall mean that such party has made a reasonable and
diligent investigation of the facts in connection therewith and is making such
representation or warranty based upon the results of such investigation.
(c) Each of the parties to this Agreement participated in
the drafting of this Agreement and the interpretation of any ambiguity contained
in this Agreement will not be affected by the claim that a particular party
drafted any provision hereof.
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<PAGE> 28
(d) Any pronoun herein shall include all genders and/or
the plural or singular as appropriate from the context.
(e) The invalidity or unenforceability of any particular
provision of this Agreement in any jurisdiction shall not affect the other
provisions hereof or such provision in other jurisdictions, and this Agreement
shall be construed in such jurisdiction in all respects as if such invalid or
unenforceable provisions were omitted. Furthermore, in lieu of such illegal,
invalid, or unenforceable provision in such jurisdiction there shall be added
automatically as a part of this Agreement a provision as similar in terms to
such illegal, invalid, or unenforceable provisions as may be possible and be
legal, valid and enforceable.
11.11. CONFIDENTIALITY. The parties hereto agree that the existence
of and contents of this Agreement and the Investor's ownership interest in the
Company shall not be disclosed other than by mutual agreement of the parties
except as necessitated by generally accepted accounting principles in financial
statements of the Investor, in connection with transactions in which the
Investor engages reasonably requiring such disclosure or as required by law.
Exhibits
- --------
4.1 Form of Member's Certificate
4.2 Co-Sale Agreement
4.3(a) Security Agreement
4.3(b) Convertible Secured Promissory Note
4.3(c) Secured Term Acquisition Promissory Note
4.3(d) Pledge Agreement/Guaranty
4.4 Operating Agreement and Consent of Members
4.5 Employment Agreement
5.1 Certificate of Formation, Good Standing Certificate
Schedules
- ---------
3 Use of Proceeds
5.2 Capitalization Table
5.3 Financial Statements
5.3(d) Additional liabilities
5.4(b) Trademarks and Copyrights
5.4(c) Claims
5.6 Subsidiaries (Atlanta arrangements)
5.7 Permits
5.8 Form of Member's Schedule C
5.10 Budget
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<PAGE> 29
5.11 Contracts
5.14 Insurance
5.17 Program Membership
5.19 Documents Relating to Arrangements with Passport
7.1 Mission Statement
9.4 List of Student Advantage Books
9.8 Method of Calculating Cost of Membership
Other Documents
- ---------------
UCC-1 Financing Statements
Lien and Judgment Searches
Student Advantage
Raymond Sozzi
Passport Acquisition Documents
Credit Search Raymond Sozzi
1994 Partnership Tax Return
Agreement with DML Enterprises
Assignment and Assumption Agreement (Partnership/LLC)
Membership Voting Agreement and Proxies
IN WITNESS WHEREOF, the Member has executed, and each of the Company
and the Investor has caused to be duly executed by its duly authorized officer
this Agreement, as of the date first written above.
PRINCETON REVIEW STUDENT ADVANTAGE LLC
PUBLISHING, L.L.C.
By: /s/ John Katzman By: /s/ Raymond V. Sozzi, Jr.
------------------------------ ------------------------------
Name: John Katzman Name: Raymond V. Sozzi, Jr.
Title: President Title: President
/s/ Raymond V. Sozzi, Jr.
- ----------------------------------
RAYMOND SOZZI
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<PAGE> 1
Exhibit 10.12
STUDENT ADVANTAGE LLC
321 COLUMBUS AVENUE
BOSTON, MA 02116
September 8, 1997
Princeton Review Publishing, L.L.C.
2315 Broadway
New York, NY 10024
Gentlemen:
Reference is made to: (i) Investment Agreement (the "Investment
Agreement") dated March 25, 1996 among Raymond V. Sozzi, Jr. ("Sozzi"), Student
Advantage LLC (the "Company") and Princeton Review Publishing, L.L.C. ("TPR");
(ii) Contract of Right of Co-Sale (the "Co-Sale Agreement") dated March 25, 1996
among Sozzi, the Company and TPR; (iii) Convertible Secured Promissory Note (the
"Convertible Note") dated March 25, 1996 in the amount of $75,000, payable by
the Company to TPR; (iv) Operating Agreement of the Company (the "Operating
Agreement") dated March 25, 1996 among the members of the Company; and (v)
Secured Term Acquisition Promissory Note (the "Term Note") dated March 25, 1996
payable by the Company to TPR.
The Company, Sozzi and TPR hereby agree as follows:
1. Effective as of June 1, 1997 (the "Effective Date"), TPR is
hereby selling to the Company, and the Company is hereby purchasing from TPR
1,498 units of membership interest in the Company (the "Purchased Units") for a
purchase price of $630,000.00 (the "Purchase Price'), plus interest through
September 8, 1997 of $14,726.25, payable as set forth below. On or before
September 8, 1997, the Company will also pay to TPR all principal and accrued
and unpaid interest in the agreed amount of $7,969.00 against delivery to the
Company of the Convertible Note marked "paid in full." The Convertible Note may
not be converted by TPR unless the company fails to comply with the payment
schedule set forth herein. For the year of such purchase, the Company will
allocate all income by effecting a closing of the Company's books as of the
close of business on May 31, 1997 and allocating income/loss through May 31,
1997 among Members of the Company based upon units of membership interest in the
Company ("Membership Units") owned prior to the purchase hereunder and
income/loss from and after June 1, 1997 among Members of the Company based on
Membership Units owned after the purchase hereunder. In this regard, (i) income
in
<PAGE> 2
the amount of $613,780 from AT&T to the extent received by the Company before
June 1, 1997 for membership cards shall be allocated to the period ending on May
31, 1997, and (ii) all other income from AT&T shall be allocated entirely to the
period commencing on June 1, 1997.
2. The Company represents and Warrants to TPR as follows: (a)
after the sale of the Purchased Units: (i) TPR will remain the owner of 981
Membership Units out of a total of 9,811 Membership Units issued and
outstanding; (ii) all such Membership Units will have identical rights,
privileges and preferences under the Company's Certificate of Formation and
Operating Agreement; and (iii) the Company will have no contingent agreements,
arrangements or commitments, warrants, options or other rights to subscribe for
or purchase or otherwise acquire any Membership Interests or other equity
securities of the Company, with the exception of Andrea Abegglen's right to
purchase 500 Membership Units at a fixed price of $175.00 per Membership Unit,
immediately prior to any transaction in which substantially all of the assets of
the Company are sold; (b) except as referred to in paragraph 3 below and
described in the annex thereto, the Company has not begun substantive
negotiations for any other material transaction outside of the ordinary course
of the Company's business; (c) annexed hereto are drafts of a balance sheet of
the Company as of December 31, 1996 and a statement of operations for the year
then ended, prepared by the Company for internal management's use and, although
non-material amendments will be made to the financial figures contained therein,
the Company is not aware of any necessary change to financial statements that
would result in a significant improvement to the financial condition or results
of operations of the Company as at and for the year ended December 31, 1996; (d)
the Company has not experienced any material changes in its financial condition
or operations since December 31, 1996, except the transaction entered into with
AT&T (noted below); (e) annexed hereto is an accurate list of current cash and
an estimate of accounts receivable and accounts payable of the Company as of the
date hereof, which reasonably reflect the net current assets of the Company; (f)
annexed hereto are accurate and complete copies of the documents that contain
all of the principal terms of the Company's arrangements with AT&T and
Pointcast; and (g) the Company has not materially breached any of the terms of
the Investment Agreement or the Operating Agreement pertaining to financial
operations of the Company, specifically, relating to the utilization of the
Company's funds, the transfer or disposal of assets, expenditures, payments,
liabilities and indebtedness, including, without limitation, Sections 7.3, 7.4
(excluding loans from members of Sozzi's family), or 7.9 of the Investment
Agreement, and Paragraphs 3.7 or 3.8 of the Operating Agreement.
3. TPR represents and Warrants to the Company that TPR owns the
Purchased Units and the Convertible Note free and clear of any adverse claims
and that the Company has informed TPR of transactions with AT&T and Pointcast by
annexing
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<PAGE> 3
the agreements described in paragraph 2 above and of possible transactions with
Main Quad, and Loci LLC, by annexing a description of each hereto as Addendum 3.
4. The Company and Sozzi represent and warrant to TPR that, since
January 1, 1997, neither of them has been in negotiations or other material or
substantive discussions with any third party for the sale of Membership Units,
neither of them has provided any written information or documents to any third
party with a view to the sale of Membership Units, and neither of them has
received any material or substantive offer to purchase, or solicitation for
information with regard to a possible sale of, Membership Units, except as
described on the annexed Addendum 4.
5. The Purchase price shall be paid as follows: on or before
September 8, 1997, $519,726.25, and the balance of $125,000 on or before August
1, 1998, such amount to be evidenced by a promissory note in the form attached
hereto as Exhibit A and secured by a security interest in the Company's assets.
The Company shall also prepay in full the Term Note on or before August 1, 1998
together with all accrued and unpaid interest thereon to the date of payment. If
the payments due by September 8, 1997 are not paid timely, then this Agreement
shall become null and void and of no further force and effect, except that the
Company shall reimburse TPR for its reasonable out-of-pocket expenses incurred
in negotiating and executing this Agreement.
6. The Investment Agreement is hereby amended as follows:
(a) Sections 5.3, 5.6, 5.7, 5.8, 5.9, 5.10, 5.11, 5.13, 5.14,
5.16, 5.17, and 5.19 are deleted.
(b) Section 7.1(a) is deleted, except that if the Company shall
engage in a Merger Transaction (as defined in the deleted portion of
7.1(a)), then TPR shall have the right to put is Membership Units to
the Company in accordance with the provisions of paragraph 10 of this
letter agreement; Sections 7.1(b); 7.19(d); 7.3 (except the first
sentence, which shall remain in effect); 7.4; 7.5, except that the
Company shall cause to be elected to the Company's Board of Directors
one person designed by TPR so long as TPR owns at least 5% of all
issued and outstanding Membership Units and such TPR-designated
director shall be entitled to call a meeting of the Company's Board;
7.7, except that the Company shall deliver to TPR copies of any
financial statements prepared by the Company and semi-annual financial
statements within 90 days of the end of each six-month period; 7.9,
except that the Company will not amend, modify or waive any provision
of Sozzi's employment agreement without the consent of TPR; 7.11; and
7.12 are deleted.
(c) Section 8.3 is deleted.
-3-
<PAGE> 4
(d) The first sentence of Section 9.7(a) is deleted and replaced
by the following text: "Subject to limitations set forth in agreements
under which the Investor shall be bound (provided that the Investor
shall not enter into any agreement that shall frustrate the purposes
of, or prohibit the achievement of, the intent of this Section 9.7(a)),
the Investor shall cause Operations to deliver to the Company in a
reasonably prompt manner, at the request of the Company, a list of its
prospects, which shall be used only for marketing membership in the
Program."
(e) Section 9.10(a)(ii) and Section 9.10(b)(ii) are amended in
pertinent part to read "the Investor owns 2% or more of the Membership
Interests of the Company. . ." Similarly, the last phrase of Clause
9.11(a) is amended to read "or owns 2% or more of the Membership
Interests, and ".
(f) Damages accrued through the date hereof, if any, from any
breach of the affirmative performance obligations under Section 9 of
the Investment Agreement are hereby waived in full by each party to the
Investment Agreement, and the parties hereto shall take reasonable
steps to mutually remedy any such breach; provided, however, that no
such provision shall be amended, modified or waived by this paragraph
6(f).
7. TPR consents to the amendment of the Operating Agreement to
effect a 1,000 for one split of Membership Units, without affecting relative
percentages. References to specific numbers of Membership Units in this letter
agreement shall refer to Membership Units prior to such split.
8. The Co-Sale Agreement and the Investment Agreement to the
contrary notwithstanding, Sozzi may sell an aggregate of up to 1,006 Membership
Units currently owned by him without TPR's consent and without regard to any
right of co- sale.
9. If at any (or times) during the one-year period immediately
following the Effective Date, the Company or Sozzi sells any equity interest in
the Company in a sale based on an imputed valuation of the entire Company
immediately prior to such sale of greater than $5,500,000, then the Company
shall pay to TPR an amount equal to 15% of the difference between such imputed
valuation minus $5,500,000 upon the closing of such sale; provided, however,
that such payment shall be limited to the lesser of 15% of the total gross
proceeds of such sale or $250,000; and provided further that the Company may
issue equity interests constituting in the aggregate an amount equal to up to
10% of the equity interests of the Company currently outstanding in exchange for
non-liquid assets or for bona fide services rendered; provided that if such
assets are disposed of for cash, marketable securities or other liquid assets
within one year after acquisition, then the equity interest in the Company
issued shall be deemed to have
-4-
<PAGE> 5
been originally issued for the value of such liquid assets ultimately received;
and provided further that if in the aggregate greater than an amount equal to
10% of the equity interests of the Company currently outstanding is issued, then
the maximum $250,000 shall be deemed to be due from the Company to TPR. Any
equity interest in the Company issued under the exemption set forth in the
foregoing sentence shall reduce on a unit-for-unit basis the equity interests
that may be issuable under the exception set forth in paragraph 11 below. The
provisions of this paragraph 9 to the contrary notwithstanding, during the
one-year period immediately following the Effective Date, Sozzi may sell a
portion of his equity interest in the Company for an aggregate purchase price of
no greater than $200,000.
10. TPR shall have the right at any time during the 24 months
following the Effective Date to put its Membership Units to the Company, and the
Company shall be required to purchase such Membership Units at the total price
of $400,000.
11. TPR's preemptive right in Section 8.1 of the Investment
Agreement shall not apply to an amount of equity interest in the Company
constituting in the aggregate up to 10% of the equity interests of the Company
currently outstanding to the extent issued: (i) to employees unrelated by birth
or marriage to Sozzi, Eichler or Siegel; or (ii) to parties unaffiliated with
the Company, Sozzi, Eichler and Siegel in exchange for non-liquid assets. Any
equity interest in the Company issued under the exemption set forth in the
foregoing sentence shall reduce on a unit-for-unit basis the equity interests
that may be issuable under the exemption set forth in paragraph 9 above.
Kindly acknowledge your agreement to the foregoing provisions by
signing this letter agreement in the place provided below.
Very truly hours,
STUDENT ADVANTAGE LLC
By: /s/ Raymond V. Sozzi, Jr.
------------------------------------
Raymond V. Sozzi, Jr., President
/s/ Raymond V. Sozzi, Jr.
------------------------------------
RAYMOND V. SOZZI, JR.
(Individually)
Accepted and Agreed:
PRINCETON REVIEW PUBLISHING, L.L.C.
By: /s/ John S. Katzman
----------------------------------
John S. Katzman, President
-5-
<PAGE> 1
Exhibit 10.13
Student Advantage, LLC
Student Advantage, Inc.
280 Summer Street
Boston, MA 02210
October 20, 1998
Princeton Review Publishing, L.L.C.
Gentlemen:
Reference is made to the ownership by Princeton Review Publishing,
L.L.C. ("Princeton") of membership interests in Student Advantage LLC (the
"LLC"), which will be exchanged for capital stock in Student Advantage, Inc.
(the "Company"), and the agreements set forth on SCHEDULE A attached hereto to
which Princeton is a party.
As you are aware, the following transactions are being contemplated
with respect to the LLC and the Company:
(i) The Operating Agreement dated as of March 25, 1996 by
and among the members of the LLC is being amended such that outstanding
membership interests are being reclassified (the "Reclassification")
into common membership interests and preferred membership interests. A
copy of the proposed Amendment to the Operating Agreement is attached
hereto as EXHIBIT A;
(ii) Immediately following the Reclassification, pursuant
to the LLC Purchase Agreement (a copy of which is attached hereto as
EXHIBIT B), by and among the LLC, all members of the LLC (the
"Members"), Student Advantage, Inc. (the "Company"), Greylock IX
Limited Partnership ("Greylock") and Mark Turtletaub ("Turtletaub," and
together with Greylock, the "Purchasers"), the Purchasers are
purchasing from the Members certain of the preferred membership
interests then outstanding (the "Purchase");
(iii) Immediately following the Purchase, pursuant to the
Exchange Agreement by and among the Members and the Company, each
Member is exchanging his common membership interests and preferred
membership interests for shares of the Company's Common Stock and
shares of Series A Convertible Preferred Stock (the "Exchange"); and
1
<PAGE> 2
(iv) Immediately following the Exchange, the Purchasers,
pursuant to a Series A Convertible Preferred Stock Purchase Agreement,
are purchasing from the Company 1,250,000 shares of Series A
Convertible Preferred Stock, pursuant to the Series A Convertible
Preferred Stock Purchase Agreement among the Company, Raymond Sozzi and
the Purchasers.
(v) The following ancillary agreements are being executed
in connection with the foregoing transactions (the "Transactions"): (i)
a Co-Sale Agreement by and among Raymond Sozzi, the Purchasers and
Princeton (pursuant to which the Purchasers and Princeton are being
granted, among other things, certain co-sale rights); (ii) an Investor
Rights Agreement by and among the Company, the Purchasers and Princeton
(pursuant to which the Purchasers and Princeton will be granted, among
other things, certain pre-emptive rights and registration rights); and
(iii) a Shareholders' Agreement by and among the Company and the
shareholders (pursuant to which the Company, the Purchasers, Princeton
and Raymond Sozzi are being granted certain rights). In addition,
certain other ancillary agreements set forth on the attached Schedule B
are being executed in conjunction with the Transactions.
The Company and the LLC represent and warrant that (1) all material
agreements, instruments and other documents being executed and/or delivered (the
"Documents") in conjunction with the Transactions are listed in this letter
agreement (including schedules and exhibits hereto) and (2) except for
non-material changes, a true and correct copy of the execution version of each
of them with respect to the Transactions, have been provided to Princeton.
As a result of the Transactions, Princeton's investment in the LLC will
be changed to an investment in a "C" corporation in which Princeton will hold
shares of Common Stock and Series A Preferred Stock. Accordingly, Princeton's
rights as a shareholder in the Company will be subject to, among other things,
the Company's Certificate of Incorporation, By-Laws, the Co-Sale Agreement,
Investor Rights Agreement and the Shareholders' Agreement.
Princeton hereby agrees that, immediately prior to the Exchange, all
agreements and arrangements set forth on SCHEDULE A hereto shall terminate and
be of no further force and effect; PROVIDED, HOWEVER, that the following
provisions of the Investment Agreement dated March 25, 1996, as amended by two
separate letters (the "Letters") dated as of September 8, 1997 (the "Investment
Agreement") shall remain in full force and effect: (a) Section 9 ("Marketing"),
including all subsections thereunder; (b) Section 10.1(a)(ii) ("Indemnification
by the Company and the Member") but only to the extent claims for indemnity
arising thereunder relate to the Company's breach of its obligations set forth
in Section 9 of the Investment Agreement; (c) Section 10.2(ii) ("Indemnification
by Investor"), but only to the extent such claim for indemnity arising
thereunder relate to Princeton's surviving covenants under the Investment
Agreement; (d) Section 10.4 ("Notice and Right to Defend Third Party Claims");
(e) Section 10.5 (`Payment of Amounts Due"); (f) Section
2
<PAGE> 3
10.6 ("Basket and Limitation for Indemnification"); (g) Section 10.7
("Limitation for Indemnification by the Member"); (h) Section 10.8 ("Audit
Right"); and (i) Section 11 ("Additional Provisions") in its entirety. The
Company further agrees that any provision in the Letters providing for
indemnification of Princeton in respect of tax liabilities incurred as a result
of the LLC's activities shall survive in full force and effect. The Company also
hereby agrees and acknowledges that the Term Promissory Note issued to Princeton
Review Publishing, LLC, dated September 8, 1997 remains in full force and effect
and shall be repaid by the Company within 7 days of the closing of the
Transactions set forth above.
Notwithstanding anything to the contrary contained herein, the
Company agrees that should the Company propose to enter into an agreement (a
"Kaplan Purchase Agreement") with Stanley H. Kaplan Educational Centers, Ltd.,
its parent The Washington Post, Inc. or any majority owned (directly or
indirectly) affiliate of its parent, The Washington Post, Inc. (collectively
"Kaplan") in which the Company proposes to sell all or substantially all of the
assets or business of the Company by merger, sale of assets or otherwise to
Kaplan then Princeton shall have a right of first refusal to purchase all or
substantially all of the assets of the Company, as the case may be, on the same
terms as are offered to Kaplan. Princeton shall have ten (10) business days from
the time of written notification of the Kaplan Purchase (the "Notice Period") to
exercise its right of first refusal. In the event Princeton does not exercise
the foregoing right of first refusal, Princeton shall have the right to, at any
time during the Notice Period but not thereafter, immediately terminate
Princeton's obligations under Section 9 ("Marketing") of the Investment
Agreement upon written notice to the Company. The rights set forth in this
paragraph shall terminate in the event of an initial public offering of the
Company's capital stock.
Notwithstanding anything to the contrary contained herein the
Company agrees that as long as Princeton owns at least 5% of the issued and
outstanding shares of the Company's voting securities (including the Series A
Preferred Stock), the Company shall nominate one person designated by Princeton
to be elected to the Company's Board of Directors and will use its best efforts
to cause such person to be elected. In addition, the Company agrees that it
shall provide Princeton with such copies of the Company's financial statements
and reports as are required to be provided to the Purchasers pursuant to Section
8.2 of the Series A Stock Purchase Agreement executed in conjunction with the
Transactions. The rights set forth in this paragraph shall terminate in the
event of an initial public offering of the Company's capital stock.
The Company further agrees that: (a) with respect to any
remaining distributions to be made to Members of the LLC by the LLC and/or the
Company in respect of the 1997 tax year, Princeton's share of such distributions
shall be equal to 10% and (b) to the extent that the LLC's 1997 or 1998 income
is greater than the amount on which Princeton's 45% distribution shall have been
calculated and causes Princeton to incur greater future tax obligations than
calculated ("the Excess Tax"), the Company shall distribute additional funds to
Princeton in an amount equal to the amount of Princeton's Excess Tax; provided,
however, that should the LLC's 1998 income be less than calculated causing
Princeton to incur tax obligations that are less than calculated (the "Tax
Shortfall"),
3
<PAGE> 4
Princeton will refund that portion of any distribution made that was in excess
of the distribution required to be made by the LLC because of the Tax Shortfall.
In no event shall the payments under the September 8, 1997 Letter Agreement for
Partial Purchase between Sozzi, Princeton and the LLC be deemed a distribution
for purposes of this letter agreement.
Notwithstanding any other provision herein, Raymond Sozzi
hereby agrees that the representations (as of the time they were given) made in
paragraph 4 of the Letter Agreement for Partial Purchase dated September 8, 1997
between Sozzi, Princeton and the LLC, shall survive and remain in full force and
effect for a period of two years from the date of this Agreement. Raymond Sozzi
further agrees that he shall vote all membership interests in the LLC and all
shares in the Company over which he has power to vote to effect the provisions
of this letter agreement.
This letter agreement is entered into in consideration of
Princeton's waiver of certain rights in respect of and consent to the
Transactions. In the case of any conflicting provision or provisions of
overlapping coverage between this letter agreement and any of the other
Documents, then this letter agreement shall supercede any such other provisions.
This letter agreement and the Documents referenced herein constitute the entire
agreement and understanding of the parties hereto with respect to the subject
matter hereof and supersede all prior agreements and understandings relating to
the subject matter. No amendment, modification or termination of, or waiver
under, any provision of the Agreement shall be valid unless in writing and
signed by the parties hereto.
The Company shall not, directly or indirectly (except where
authorized by Princeton, for the benefit of Princeton), for or on behalf of any
person, at any time: divulge to any person other than Princeton, or use or cause
to authorize any third parties to use, any information provided by Princeton to
the Company, other than information that is publicly available (the
"Confidential Information") (whether or not the Confidential Information is
labeled as confidential or secret); or provide such Confidential Information to
its employees or directors, expect on a need to know basis. The Company shall
prevent its officers, directors, employees and agents and any other person from
taking any action that would breach this confidentiality provision, if such
action were taken by the Company itself.
4
<PAGE> 5
Sincerely,
Student Advantage LLC
By: /s/ Raymond V. Sozzi, Jr.
-------------------------------
Name: Raymond V. Sozzi, Jr.
Title: President
Accepted and Agreed to: Accepted and Agreed (only as to
the representations in the second
to last paragraph hereof)
PRINCETON REVIEW PUBLISHING LLC
By: /s/ John Katzman /s/ Raymond V. Sozzi, Jr.
------------------------------- -----------------------------------
Name: John Katzman Raymond V. Sozzi, Jr.
Title: President
STUDENT ADVANTAGE, INC.
By /s/ Raymond V. Sozzi, Jr.
------------------------------------
Name: Raymond V. Sozzi, Jr.
Title: President
5
<PAGE> 6
SCHEDULE A
1. Security Agreement dated March 25, 1996
2. Pledge Agreement dated March 25, 1996
3. Operating Agreement dated March 25, 1996
4. Contract of Right of Co-Sale dated March 25, 1996
5. Letter Agreement for Partial Purchase dated September 8, 1997
6. Investment Agreement dated March 25, 1996, as amended by Letter
Agreements for Partial Purchase dated September 8, 1997.
6
<PAGE> 7
SCHEDULE B
1. Stock Purchase Agreement (list of purchasers, exceptions to
representations, list of security holders, opinion of counsel).
2. Charter (Certificate of Amendment)
3. Voting Agreement
4. Investor Rights Agreement
5. Co-Sale Agreement
6. LLC Purchase Agreement
7. Amended and Restated Operating Agreement
8. Amendment No. 1 to Amended and Restated Operating Agreement
9. Exchange Agreement
10. Restated By-Laws
11. Amendment to Employment Agreement with Raymond Sozzi
12. Letter Agreement with Main Quad as to election of director and
settlement of contingent rights
13. Shareholders Agreement
14. Consent of AT&T
15. Consent of US Trust
16. Consent of Retal, Ltd.
17. Agreements with Princeton Review (Put Agreement and this letter)
18. Agreement with Andrea Abegglen regarding exercise of options.
7
<PAGE> 8
19. Proxy granted by certain LLC members to Sozzi
20. Certificate of the Secretary of the Company (bylaws, resolutions)
21. Unanimous Consent of the Board of Directors of the Company
22. Consent of Shareholders of Company.
23. Joint Consent of the Board of Directors and Members of LLC.
8
<PAGE> 1
Exhibit 11.1
Computation of net loss per share and unaudited pro forma net loss per share
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
(in thousands, except per share data)
---------------------------------------
1996 1997 1998
---------------------------------------
<S> <C> <C> <C>
Basic and diluted net loss
per share:
Net Loss $ (657) $(3,152) $ (5,115)
======= ======= ========
Basic and diluted weighted
average common shares
outstanding 14,184 15,295 15,957
======= ======= ========
Basic and diluted net loss
per share $ (0.05) $ (0.21) $ (0.32)
======= ======= ========
</TABLE>
Year Ended December 31, 1998
(in thousands, except per share data)
Unaudited pro forma basic and diluted
net loss per share:
Net Loss $ (5,115)
========
Unaudited pro forma basic and diluted
weighted average shares outstanding:
Shares attributable to common stock 15,743
Shares attributable to the assumed
conversion of Preferred Stock upon
closing of an initial public offering 5,385
--------
Unaudited pro forma basic and diluted
weighted average shares outstanding: 21,128
========
Unaudited pro forma basic and diluted
net loss per share $ (0.24)
========
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of our
report dated April 5, 1999, relating to the financial statements of Student
Advantage, Inc., which appear in such Registration Statement. We also consent to
the references to us under the headings "Experts" and "Selected Financial Data"
in such Registration Statement.
PRICEWATERHOUSECOOPERS LLP
Boston, Massachusetts
April 7, 1999
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the use in this Registration Statement on Form S-1 of our
report dated April 5, 1999, relating to the financial statements of Collegiate
Advantage, Inc., which appear in such Registration Statement.
PRICEWATERHOUSECOOPERS LLP
Boston, Massachusetts
April 7, 1999
<PAGE> 1
Exhibit 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the use in this Registration Statement on Form S-1 of our
report dated April 5, 1999, relating to the financial statements of The Main
Quad, Inc., which appear in such Registration Statement.
PRICEWATERHOUSECOOPERS LLP
Boston, Massachusetts
April 7, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 5,048
<SECURITIES> 0
<RECEIVABLES> 2,937
<ALLOWANCES> 70
<INVENTORY> 0
<CURRENT-ASSETS> 8,232
<PP&E> 1,308
<DEPRECIATION> 223
<TOTAL-ASSETS> 9,934
<CURRENT-LIABILITIES> 10,479
<BONDS> 0
10,196
0
<COMMON> 184
<OTHER-SE> 698
<TOTAL-LIABILITY-AND-EQUITY> 9,934
<SALES> 7,174
<TOTAL-REVENUES> 17,443
<CGS> 2,052
<TOTAL-COSTS> 9,383
<OTHER-EXPENSES> 13,177
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 87,000
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,115)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,115)
<EPS-PRIMARY> (.32)
<EPS-DILUTED> 0
</TABLE>
